Author Question: Suppose pollution, which generates a negative externality, exists in a market. If transactions costs ... (Read 49 times)

washai · **on:** Jun 29, 2018

Suppose pollution, which generates a negative externality, exists in a market. If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem,

A) an equitable solution can only be reached if property rights are assigned to the victims of pollution and not the polluters.
B) an equitable solution can only be reached if property rights are assigned to the polluters, and not the victims of pollution.
C) an efficient solution can be reached regardless of the initial assignment of property rights.
D) government intervention is necessary to reach an efficient and equitable solution.

Question 2

Refer to Figure 1A.1. Assume that the graph in this figure represents the demand and supply curves for orange juice. An increase in the price of apple juice, which is a substitute for orange juice, would be represented by a shift from

A) Demand 1 to Demand 2.
B) Demand 2 to Demand 1.
C) Supply 1 to Supply 2.
D) Supply 2 to Supply 1.