Which of the Following Will Lead to an Efficient Private

question 39

Multiple Choice

Which of the following will lead to an efficient private solution if negative externalities are present in a market?

• A) The government paying a subsidy to the parties involved in generating externalities
• B) The party creating the externality having legal property rights
• C) The party suffering from the externality having legal property rights
• D) The parties involved negotiating with each other and reaching an agreement

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Definitions:

Stock

A kind of financial instrument that indicates possession in a company and symbolizes a right to a portion of the firm's assets and profits.

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates higher than average market volatility.

Risk Premium

The additional return an investor requires for taking on a higher level of risk compared to a risk-free investment.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, often represented by government bonds in finance.