Arbitrage Equalizes Rates of Return Across Similar Investments Because

question 80

Multiple Choice

Arbitrage equalizes rates of return across similar investments because

• A) arbitrage also equalizes the prices of the assets.
• B) investors prefer diversity.
• C) investors will want to replace lower rate of return assets with those generating higher rates of return.
• D) investors will want to replace higher rate of return assets with those generating lower rates of return.

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Definitions:

Positive Externalities

Benefits that result from a transaction or activity and affect others not directly involved in the transaction or activity.

Marginal Social Cost

The total cost society bears for the production of an additional unit of a product, including both private and external costs.

Marginal Private Cost

The additional cost borne by a producer for producing one extra unit of a good or service.

Marginal Cost Curve

A graphical representation showing the increase in total cost that arises from producing one additional unit of a good or service.