What does the Coase Theorem predict?
What will be an ideal response?
The Coase Theorem predicts that if the production or consumption of a good involves a negative externality, bargaining between the party creating the externality and the party suffering from it will result in an efficient allocation of resources irrespective of who holds the legal property rights if transaction costs are not too high.
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In one of the earliest studies on the link between interest rates and money demand using United States data, James Tobin concluded that the demand for money is
A) sensitive to interest rates. B) not sensitive to interest rates. C) not sensitive to changes in income. D) not sensitive to changes in bond values.
Suppose a plaintiff hires a lawyer to represent her in a court case. The lawyer will receive a share of the settlement if the plaintiff wins. Under this contract
A) efficiency cannot be achieved. B) the client bears all of the risk. C) the lawyer bears all of the risk. D) the risk is shared.
Profits are maximized when
A) added costs are equal to added revenue. B) costs equal revenue. C) average costs equal average revenue. D) economic profits are zero.
Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Union Bank has no excess reserves. If a new customer deposits $50,000 . the bank could extend new loans up to a maximum of
a. $10,000. b. $40,000. c. $50,000. d. $250,000.