When Markets Don't Align Self-Interest with Social Interest

question 40

Multiple Choice

When markets don't align self-interest with social interest:

• A) markets will still manage to reach an efficient outcome.
• B) governments may improve the situation by changing incentives.
• C) societal costs will always exceed individual benefits.
• D) individual benefits will exceed societal benefits.

---

Definitions:

Volatility

The statistical measure of the dispersion of returns for a given security or market index, often associated with the degree of risk involved.

Risk Premium

The additional return an investor demands for taking on additional risk above the risk-free rate.

Expected Rate

The expected rate refers to the forecasted return on an investment or the predicted growth rate of an asset over a specific period.

Standard Deviation

A statistical measure that quantifies the dispersion or variability of a set of data points or investment returns around their mean.