The Privately-Owned School System in Smalltown Has a Virtually Unlimited

question 198

Multiple Choice

The privately-owned school system in Smalltown has a virtually unlimited capacity. It accepts all applicants and operates on both tuition and private donations. Although every resident places value on having an educated community, the school's revenues have suffered lately due to a large decline in private donations from the elderly population. Since the benefit that each citizen receives from having an educated community is a public good, which of the following would not be correct?

• A)The free-rider problem causes the private market to undersupply education to the community.
• B)The government can potentially help the market reach a socially optimal level of education.
• C)A tax increase to pay for education could potentially make the community better off.
• D)The private market is the best way to supply education.

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Definitions:

Floating-Rate Bond

A bond whose interest payments fluctuate with the market interest rates, rather than being fixed.

Coupon Payment

The annual interest payment made to bondholders, typically expressed as a percentage of the face value.

Interest Rate Index

A benchmark interest rate that serves as a reference point for determining interest rates on various financial instruments or loans.

Coupon Rate

The yearly interest rate that a bond yields, represented as a percentage of its nominal value.