Which of the Following Is the Best Example of a Market

question 4

Multiple Choice

Which of the following is the best example of a market failure that would lead a firm to extract resources at a rate that is faster than the rate that would maximize its long-term stream of profits?

• A) The market price of the resource rises.
• B) Weak property rights create fears that firms will not be allowed to extract in the future.
• C) Market interest rates increase.
• D) New information suggests that the demand for the resource will be greater in the future.

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Definitions:

Par Value

The face value of a bond or the stock value stated in the corporate charter, often used as a reference point for the bond's interest payment.

Callable Bond

A bond that can be redeemed by the issuer prior to its maturity date, usually at a premium to its face value.

Straight Bond

A fixed-income security that pays a fixed interest rate until maturity, at which point the principal is repaid; does not have any special features like convertibility or callability.