When a Free-Rider Problem Exists

question 437

Multiple Choice

When a free-rider problem exists,

• A)the market will devote too few resources to the production of the good.
• B)the cost of the good will always be more than the benefit of the good.
• C)the good will not be produced.
• D)entrepreneurs will eventually find a way to make free-riders pay their share.

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Definitions:

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, typically represented by the yield on government bonds.

Equity

Equity represents ownership interest in a corporation, measured by the portion of the company's capital that comes from the shareholder's investment.

Risk-Free Rate

The theoretical return on an investment with zero risk, often represented by the yield on government bonds.

Strike Price

The strike price, in options trading, is the price at which the holder of an option contract can buy (call option) or sell (put option) the underlying security or commodity.