The Coase theorem suggests that private bargaining can solve externality problems if: MCQ with Answer and Explanation

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The Coase theorem suggests that private bargaining can solve externality problems if:

A. transaction costs are high and property rights are unclear

B. the market is monopolized

C. transaction costs are low and property rights are clearly defined

D. the government imposes taxes

Answer: Option C

Solution (By JKSSB Mock Tests)

The Coase theorem states that with low transaction costs and clearly defined property rights, private parties can resolve externalities.

This question belongs to: Economy GK Economy Set 1

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Question #1

The 'Financial Action Task Force' is an intergovernmental body that combats:

A. inflation

B. trade deficits

C. money laundering and terrorist financing

D. unemployment

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Correct Answer: Option C

Explanation:
FATF combats money laundering and terrorist financing.

This question belongs to: Economy GK Economy Set 1

Question #2

Which of the following is a major challenge for monetary policy in an open economy?

A. No impact of capital flows

B. Impossible trinity or trilemma of fixed exchange rate, free capital flows and independent monetary policy

C. Complete control over all three objectives simultaneously

D. Absence of any trade-off

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Correct Answer: Option B

Explanation:
The impossible trinity states that it is impossible to have a fixed exchange rate, free capital mobility and an independent monetary policy simultaneously; only two of the three can be achieved.

This question belongs to: Economy GK Economy Set 1

Question #3

Which of the following is a characteristic of the 'New Institutional Economics' approach?

A. It assumes zero transaction costs always

B. It emphasises the role of institutions, property rights and transaction costs in economic performance

C. It focuses only on technological change

D. It ignores institutions completely

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Correct Answer: Option B

Explanation:
New Institutional Economics, associated with Coase, North and Williamson, analyses how institutions, property-rights structures and transaction costs shape economic behaviour and long-run performance.

This question belongs to: Economy GK Economy Set 1

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