In View of the Possible Need for Government Action in Markets

question 129

Multiple Choice

In view of the possible need for government action in markets where asymmetric information is a problem, which of the following is a valid concern?

• A)The government rarely has more information than the private parties.
• B)Private markets can sometimes deal with information asymmetries on their own.
• C)The government is itself an imperfect institution.
• D)All of the above are valid concerns.

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Definitions:

Cost of Capital

The required return necessary to make a capital budgeting project, such as building a new factory, worthwhile.

Net Investment

The total amount spent on purchasing new capital assets minus depreciation on existing assets, indicating the actual increase in a company's capital stock.

Cash Operating Costs

Expenses directly related to the daily operational activities of a business, excluding financing costs and taxes.

Depreciated

An accounting process of allocating the cost of a tangible asset over its useful life, reflecting its decrease in value over time.