Question

Products that create external benefits are over-consumed because the private benefits exceed the private costs under consumed because consumers only consider the private benefits of consumption O optimally consumed as long as private benefits equal private costs underconsumed because the social costs exceed the social benefits QUESTION 23 The Coase theorem suggests that private bargains will ensure the efficiency of markets even when externalities exist O but only in the presence of government regulation if consumers have more information regarding the externality than suppliers if transactions costs are low and property rights are well-defined if the cost of the negotiation are less than the price of the good QUESTION 24 Incentives to work and save are reduced when o income taxes are higher consumption taxes replace income taxes corrective taxes are implemented lump sum taxes are imposed

Answer 1

23. Option C.

• According to the coarse theorem, private bargains will ensure the efficiency of the markets even in the presence of externalities
• But it rules out an exception that, the efficiency is achieved only when the transaction costs are low and all the property rights are clear and we'll defined.

24. Option A.

• Incentives to work and save are reduced when income taxes are higher.
• When people are taxed on income rather on their consumption levels, their incentive to work and save falls. This is because they receive very less income which goes in the purchase of day to day necessities. Hence it decreases their savings.