Economics For Today

10th Edition
Publisher: Cengage Learning
ISBN: 9781337613040



Economics For Today

10th Edition
Publisher: Cengage Learning
ISBN: 9781337613040
Chapter 14, Problem 11SQP
Textbook Problem

Provide an example of a market where you think the Coase Theorem applies. Explain why you think the market satisfies assumptions regarding transactions costs, income effects, and free riders.

To determine

Market where the Coase theorem is applied.

Explanation of Solution

The cost of the production is the costs associated with the production of a commodity in the economy. It includes the cost of the raw materials used for production, the cost of the equipment, as well as labor used for the production process. The externalities are the additional costs and benefits incurred to the third person who is not actually involved in the economic transaction. When the additional costs are incurred, it is known as the negative externalities, and when it is benefited, they are known as the positive externalities.

The Coase theorem states that the externalities can be avoided to attain social efficiency through the assigning of the property rights. The property right owner and the opposing team will bargain on the rights, and they would reach into a point where the marginal social cost equals the benefit, and the social efficiency is attained in the economy.

But in real life cases, it is very difficult to identify a market where the Coase theorem applies...

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Chapter 14 Solutions

Economics For Today
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