Competitive Markets Are Unlikely to Produce the Efficient Quantity of a Public

question 66

Multiple Choice

Competitive markets are unlikely to produce the efficient quantity of a public good because:

• A)public goods are nonrival in consumption but exclusion costs are low.
• B)public goods are nonrival and are characterized by nonexclusion.
• C)the marginal benefit derived from a public good is less than the marginal cost of producing the good.
• D)the marginal benefit of a public good increase with an increase in consumption of the good.

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Definitions:

Capital Asset Pricing Model

A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.

Expected Rate

The return that investors anticipate or predict receiving over a certain period, often used in the context of interest rates or investment returns.

Risk-free Rate

The return an investor would expect from an absolutely risk-free investment over a specified period.

Expected Market Rate

The anticipated return on investment in the market based on past trends and future forecasts.