Author Question: The federal budget deficit and the trade balance are often referred to as the A) twin deficits. ... (Read 181 times)

kwoodring · **on:** Jun 29, 2018

The federal budget deficit and the trade balance are often referred to as the

A) twin deficits. B) dueling depreciators.
C) balance of payments. D) national debt.

Question 2

What is the Coase Theorem? Under what conditions will the Coase Theorem break down?

What will be an ideal response?

bbburns21 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A

Answer to Question 2

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.