A Market Is Not Perfect Only Because Market Agents Are

question 7

Multiple Choice

A market is not perfect only because market agents are price takers but is also free of transactions costs and any impediment to the interaction of supply and demand for the commodity. Economists refer to these various costs and impediments as frictions. Frictions include ________.

• A) bid-ask spreads charged by dealers and order handling and clearance charges.
• B) taxes (but not on capital gains) and government-imposed transfer fees.
• C) costs of acquiring information about the financial asset and restrictions on market takers.
• D) financial liability that a buyer or seller may take and taxes on capital gains.

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Definitions:

Debentures

A type of long-term security issued by a company, backed only by the general creditworthiness and reputation of the issuer.

Mortgage Bonds

Debt securities secured by a mortgage or collection of mortgages, giving holders a claim on the underlying property.

Directors' Meeting

A formal gathering of the board of directors of an organization to discuss and make decisions on company policy and management issues.

Preferred Shares

A type of stock that provides dividends and certain privileges in the event of liquidation before common stockholders.