One of the most important contributions to microeconomics in the past 50 years i
ID: 1202000 • Letter: O
Question
One of the most important contributions to microeconomics in the past 50 years in the Coase Theorem. a) Briefly state the Coase Theorem. What assumptions does the theorem employ? b) Assume that the production of a firm damages a nearby resident. Specifically, a) What is the efficient level of output? b) What is the equilibrium level of output assuming the firm has the right to pollute? Explain fully c) What is the equilibrium level of output assuming the firm can only pollute with the resident's permission. d) How might your answer to (b) change if (here are 1,000 residents?Explanation / Answer
14 a) Coase theorem is theorem that describes economic efficiency of an economic allocation or outcome in the presence ofexternalities. It states that through bargaining pareto efficient outcome can be resulted, regardless of the initial allocation of property, if trade is possible in externalit and also if there are sufficiently low transaction costs.
when conflicting property rights occur, bargaining between the parties involved will lead to an efficient outcome regardless of which party is ultimately awarded the property rights, as long as the transaction costs associated with bargaining are negligible.
As stated above main assumpions include:
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