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Private Solutions to Externalities: The Coase Theorem quiz #1

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  • Which of the following statements about vertical integration is true in the context of private solutions to externalities?
    Vertical integration is not directly related to the Coase Theorem or private solutions to externalities; instead, the Coase Theorem focuses on private negotiations and clearly defined property rights to resolve externalities efficiently.
  • The Coase Theorem works best when which party owns the property rights?
    The Coase Theorem works best when property rights are clearly defined, regardless of which party owns them, as long as transaction costs are low.
  • In which of the following cases is the Coase Theorem most likely to solve the externality?
    The Coase Theorem is most likely to solve the externality when property rights are clearly defined and transaction costs are minimal.
  • Which of the following is a problem with the Coase Theorem?
    A problem with the Coase Theorem is that high transaction costs or unclear property rights can prevent private parties from reaching an efficient solution.
  • What must be true for the Coase Theorem to hold? (Part 2: For the Coase Theorem to hold)
    For the Coase Theorem to hold, property rights must be clearly defined and transaction costs must be low.
  • According to the Coase Theorem, private parties can solve the problem of externalities if what conditions are met?
    Private parties can solve the problem of externalities if property rights are clearly defined and transaction costs are low.
  • Which of the following is a disadvantage of private enterprise in solving externalities?
    A disadvantage of private enterprise in solving externalities is that high transaction costs or unclear property rights may prevent efficient private solutions.
  • Who won a Nobel Prize for developing the theorem that explains private solutions to externalities?
    Ronald Coase won a Nobel Prize for his work on the Coase Theorem, which addresses private solutions to externalities.
  • In the barking dog example, what role does the government play when private solutions are used?
    The government helps enforce property rights but does not intervene with taxes or subsidies when private solutions are used.
  • What is considered a transaction cost in the context of the Coase Theorem?
    A transaction cost can include time, money, coordination efforts, or even hiring a translator if there is a language barrier between negotiating parties.