A Consumer Values a Car at $525,000 and a Producer

question 3

Multiple Choice

A consumer values a car at $525,000 and a producer values the same car at $485,000.If the transaction is completed at $510,000,the transaction will generate:

• A)No surplus
• B)$25,000 worth of seller surplus and unknown amount of buyer surplus
• C)$15,000 worth of buyer surplus and $25,000 of seller surplus
• D)$25,000 worth of buyer surplus and unknown amount of seller surplus

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Definitions:

Positive Expected Return

A projection that an investment will yield a return above the initial outlay.

Risk-Free Arbitrage

The practice of profiting from price differences in different markets or forms without risk.

Benchmark Portfolio

Portfolio against which a manager is to be evaluated.

Well-Diversified

Refers to an investment portfolio that contains a wide variety of assets to minimize risk.