Suppose the Marginal Benefit Per Dollar Spent on Having Uniformed

question 48

Multiple Choice

Suppose the marginal benefit per dollar spent on having uniformed officers walk a beat in the inner city is $7,000 while the marginal benefit per dollar spent on having undercover officers infiltrate drug rings is $6,000. This suggests that in terms of its budget:

• A) the city needs to reallocate resources so more dealers are arrested.
• B) the city needs to reallocate resources so more drug rings are infiltrated.
• C) the city is currently spending money efficiently as both activities generate positive net benefits.
• D) the city needs to reallocate its resources so more officers walk a beat.

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Definitions:

Arbitrage Opportunity

An arbitrage opportunity is the chance to buy an asset at a low price in one market and sell it at a higher price in another, taking advantage of the price difference for profit.

Expected Return

The anticipated amount of returns an investment is expected to generate, calculated as a weighted average of possible returns, based on their probabilities.

Risk-free Rate

The theoretical return on an investment with zero risk, often represented by the yield on government securities like U.S. Treasury bills.

Real Estate

Property consisting of land or buildings, and anything affixed to the land, that has economic value.