Question from Past Microeconomics Qualifying Exam[]
Spring 2000- Section I, Question five, George Mason University
True, False, Uncertain. Determine whether or not each of the following statements are true or false. Explain your reasoning briefly in a paragraph or two. (The explanation is often more important than the answer given). Include a carefully labeled diagram or game matrix if it helps to clarify your answer.
If the conditions of the Coase Theorem hold, we should never observe an externality.
Answer[]
The Coase theorem posits that if transaction costs are low or non-existent, property rights are clearly defined and there are no wealth effects, then bargaining can produce an efficient outcome regardless of initial property rights.
See Also[]
- MicroF05-I.5
- MicroS97-I.4
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