Which of the Following Can Prevent Markets from Reaching Efficiency

question 101

Multiple Choice

Which of the following can prevent markets from reaching efficiency? I. price regulations that cap the price that may be charged
II) increasing marginal cost
III) monopoly

• A) I only
• B) I and II
• C) II and III
• D) I and III

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Definitions:

Unsystematic Risk

The segment of risk that is unique to a specific company or industry, also known as diversifiable risk, which can be mitigated through diversification.

Diversification

Spreading a portfolio over many investments to avoid excessive exposure to any one source of risk.

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs.

Unique Risk

Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called firm-specific risk, nonsystematic risk, or diversifiable risk.