What is the Coase Theorem? Under what conditions will the Coase Theorem break down?
What will be an ideal response?
The Coase Theorem predicts that, when there are externalities, negotiation between the individuals involved leads to the efficient outcome regardless of who has the legal property right. This means that government intervention is not necessary to solve externality problems.
The Coase Theorem will not hold if transaction costs of negotiating are too high. This cost could include direct expenditures like legal fees and time and also the cost of an awkward situation: it may be difficult to bargain with neighbors and others. The number of agents on each side of the bargaining table also matters; bargaining may not work when there are many people involved. Additionally, it's important for the property right to be clearly defined; in many cases, the law is not clear on who holds the property rights.
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If the Y-intercept of a linear function increases while the slope remains unchanged
a. the graph must shift down in a parallel way. b. the graph must rotate to the left about the X intercept. c. the graph must shift up in a parallel. d. the graph remains unchanged.
The existence of money makes trade easier. How is it that money can also increase the standard of living?
Specialization and the division of labor typically result in
A. decreased output. B. a greater reliance upon imports. C. increased output. D. cost overruns.
An effective price ceiling occurs when
A. the government sets a maximum price for a good above the equilibrium price. B. the government sets a maximum price for a good below the equilibrium price. C. the government sets a minimum price for a good below the equilibrium price. D. the government sets a minimum price for a good above the equilibrium price.