Which of the Following Leads to the Diversification of Risk

question 7

Multiple Choice

Which of the following leads to the diversification of risk?

• A)Investing in assets that give the highest possible returns
• B)Investing in safe assets that may give low returns
• C)Investing in multiple assets rather than a single asset
• D)Investing in assets that are highly risky but give high returns

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Definitions:

Increasing Opportunity Costs

The concept that as the production of one good is increased, the opportunity cost of producing additional units rises.

Production Possibilities Curve

A graph that shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently utilized.

Bowed Outward

Refers to the shape of a production possibility frontier that shows increasing opportunity costs as production shifts between two goods.

Absolute Advantage

A situation in which a nation, as the result of its previous experience and/or natural endowments, can produce more of a good (with the same amount of resources) than another nation can.