Overuse of a Common Resource May Be Avoided by All

question 240

Multiple Choice

Overuse of a common resource may be avoided by all of the following methods except

• A) charging for the use of a common resource.
• B) issuing tradable permits for the use of a common resource.
• C) the government taking over ownership of all private common resources.
• D) setting quotas or legal limits on the quantity consumed of the common resource.

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Definitions:

Moral Hazard

The situation in which an entity has the incentive to take undue risks because the cost of those risks will be borne, at least in part, by others.

Firm-Specific Risk

The risk associated with an individual company, which can be reduced through diversification in investment.

Market Risk

The possibility that investors might incur losses because of elements influencing the general performance of the financial markets.

Informationally Efficient

A market condition where all existing information is completely accounted for in stock prices, thereby eliminating the possibility of consistently securing above-average profits.