The statement that is true in the given scenario.
Answer to Problem 10MCQ
Option c is correct.
Explanation of Solution
Explanation for the correct option:
c.
In a financial system, efforts are taken to reduce the transaction cost, ensure liquidity and minimize financial risk which can be done by ensuring the efficiency of the financial market.
Therefore, option c is correct.
Explanation for incorrect options:
a.
A prisoner’s dilemma is a situation where an individual who is a decision maker has an incentive of selecting a way that can create a less-than-optimal outcome for an individual as a group. This situation does not apply to Firm X and Firm Y as they both are not in a situation.
Therefore, option a is incorrect.
b.
The financial system helps in reducing transaction costs so that traders can purchase or sell financial assets more easily. Therefore, option b is incorrect.
d.
A diversified market is less risky than an undiversified market. Decreasing diversification will increase the market risk. Therefore, option d is incorrect.
e.
Ensuring liquidity is one of the tasks of the financial system. Therefore, option e is incorrect.
Payoff matrix and Nash equilibrium: Nash equilibrium refers to the outcome at which both players receive no incentive in changing their previous strategy. In a payoff matrix where there are two players, for a Nash equilibrium, the row which is selected should maximize the payoff for the row player and the column should also maximize the payoff of the column player.
Chapter 12R Solutions
Krugman's Economics For The Ap® Course
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