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.


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.

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