Answered: Consider a two-period resource…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider a two-period resource allocation problem where the efficient allocation of the resource implies a market price of $21 in the second period. Assume in both periods the constant marginal extraction costs equal $1 and the social discount rate is 25%. The socially efficient undiscounted market price in the first period must be:

Select one:

a. $17.

b. $20.

c. $19.

d. $18.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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