Unregulated Competitive Markets for Services with Negative Externalities, Such as Gambling

question 7

Multiple Choice

Unregulated competitive markets for services with negative externalities, such as gambling, tend to establish a price for the service that

• A)is too low to support efficient use of scarce resources.
• B)is too high to support efficient use of scarce resources.
• C)supports efficient use of scarce resources.
• D)provides a modest stipend for support of recovering addicts.

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Definitions:

Voting Stock

Shares that give the shareholder the right to vote on corporate matters, such as electing the board of directors.

Equity Method

An accounting method used to record investments in associate companies, where the investment is initially recorded at cost and adjusted according to the investor's share of the associate's net income or loss.

Equity Investment

Equity investment involves purchasing stocks or shares in a company, providing the investor with ownership interest and potentially dividends.

Cost Method

A method of accounting for equity investments representing less than 20% of the outstanding shares of the investee. The purchase is at original cost, and any gains or losses upon sale are recognized by the difference between the sale proceeds and the original cost.