What is the Coase Theorem? What are transaction ...

[stevenposner]

What is the Coase Theorem? What are transaction costs?

Question 2

Which of the following is not a result we would expect to result from a tariff on leather shoes?
 a. The price of leather shoes in the U.S. would increase.
 b. The amount of shoes imported into the U.S. would decline.
 c. Fewer pairs of shoes would be sold in the U.S.
 d. Domestic producers would sell fewer shoes at the higher prices.

[amcvicar]

Answer to Question 1

The Coase Theorem asserts that if the benefits are greater than the costs for some course of action, there must be potential transactions that can make some people better off without making anyone worse off. For this to result property rights must be well-defined and transaction costs must be low. Transaction costs are the costs of negotiating and executing an exchange, excluding the cost of the good or service bought.

Answer to Question 2

d