The statement that is true in the given scenario.
Answer to Problem 1CYU
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.
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Chapter EMB Solutions
Krugman's Economics For The Ap® Course
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