It Is Generally Difficult or Impossible for Private Markets to Take

question 120

Multiple Choice

It is generally difficult or impossible for private markets to take externalities into account because:

• A)decision makers in the market fail to take account of the spillover effects of their behaviour
• B)buyers and sellers in private markets are only interested in social wellbeing
• C)people are only interested in short-term gains
• D)governments are responsible for externality problems

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Definitions:

Cost of Equity

The rate of return required by a company's shareholders for investing in the company, representing the compensation for the risk undertaken.

Cost of Debt

The actual rate at which a corporation incurs cost on its present liabilities, assessable before or after tax deductions.

Tax Rate

The quantified percentage of an individual’s or corporation’s income that is taken as tax.

Cost of Preferred Stock

The required rate of return on preferred stock, which is typically fixed.