A Negative Externality

question 292

Multiple Choice

A negative externality

• A)is an adverse impact on a bystander.
• B)causes the product in a market to be under-produced.
• C)is an adverse impact on market participants.
• D)is present in markets where the good or service does not have any impact on bystanders.

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Definitions:

Security Market Line

A graphical representation of the expected return on investments as a function of their risk, illustrating the capital asset pricing model.

Market Risk Premium

The extra return investors expect to earn from holding a risky market portfolio instead of risk-free assets.

Diversification

An investment strategy that involves spreading out investments across various financial instruments, industries, and other categories to reduce risk.

Fundamentally Different Industries

are industries that vary greatly in their nature, operations, market dynamics, and regulatory environments.