Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is to achieve an amount of pollution

not necessary; efficient.

Explanation:

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is not necessary to achieve an efficient amount of pollution. Coase theorem was developed in 1960 by a British economist and author named Ronald Coase.

Coase theorem states that when the actions of a party (X) negatively affects or harm another party (Y), then party Y should be able to create an incentive for party X to stop or limit the action creating such harm.

Hence, when transaction cost are low, the two parties are able to bargain and reach a mutual agreement in the presence of an externality such as a pollution.

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reducing the scale of the market for a new product.