Markets May Not Achieve an Efficient Allocation of Resources When

question 19

Multiple Choice

Markets may not achieve an efficient allocation of resources when there are

• A)public goods.
• B)external benefits.
• C)monopolies.
• D)subsidies.
• E)all of the above

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Definitions:

Unique Risk

Another term for diversifiable risk, emphasizing the idea that this risk is specific to an individual investment and not the market as a whole.

Systematic Risk

The risk inherent to the entire market or market segment, also known as market risk, which cannot be eliminated through diversification.

Capital Allocation Line

A line on a graph that shows the rates of return of portfolios that optimally combine risk and return for an investor.

Risk-averse Investors

Individuals who prefer lower returns with known risks rather than higher returns with unknown risks.