Questions on The Problem of Social Cost by Coase What is the

Questions on “The Problem of Social Cost” by Coase

What is the “economic problem” that Coase addresses?

What does Coase mean by “social cost”?

What does Coase mean by “the problem of social cost”?

What are “transaction costs”?

Solution

a. Coase addresses the economic problem of externalities which refers to the goods for which no market exist or an industrial or commercial activity which affects other parties without this being reflected in the market prices.

b. Social cost according to Coase is equal to private cost plus externalities. Thus, social cost includes additional cost associated with the production of the good which is imposed on the consumers for which they are not compensated ot charged.

c. The Problem of social cost is an atricle dealing with the problem of externalities. This stated that when information and transaction costs are low , the market will produce an efficient solution to the problem of nuisances without regard to the law which is based on legal rules and laws and considers cost benefit analysis.

d. Transaction costs are the cost incurred during trading, process of buying and selling, over and above the price of the product. It might include legal fees, communication fees, information cost of finding the price, or labor required to bring the product to market.