Briefly explain what economists mean when they refer to the stock market as a random walk.
What will be an ideal response?
Student responses will vary but should accurately reflect the random walk theory. According to this theory, it is difficult to consistently pick winners in the stock market unless you have illegal inside information or are very lucky. If markets are operating efficiently, then stock prices will reflect all available information, and consistent, extraordinary profit opportunities will not exist. Someone who has a hot tip can only benefit from it if they are one of just a few people who know about it. Information that is available to large numbers of people will not be a source of profit.
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When external costs are present and the government imposes a tax equal to the marginal external cost, then
A) efficiency can be achieved. B) transaction costs will be high. C) the marginal benefit of the external cost will fall. D) property rights must have already been established.
The ability of an owner of a piece of property to deny its use to others is labeled ________
A) excludability B) rivalry C) non-rivalry D) lugubrious
Beverage Merger Cott Corp markets a portfolio of beverages, bottled waters, beverage, and coffee delivery systems for homes and offices. In November, 2014, it has agreed to merge with DS Services of America, a water and coffee direct-to-consumer services provider. What is the expected effect of this merger on price-cost margins?
Suppose the marginal physical product of labor at a shoe string factory is 1,500 shoestrings per hour at 80 hours, 1,200 per hour shoestrings at 90 hours, 800 shoestrings per at 100 hours, and 300 shoestrings per hour at 110 hours. If a shoestring maker’s wages are $60 per hour and each string sells for $0.05. What is the optimal use of labor for making shoestrings?
A. 80 hours B. 90 hours C. 100 hours D. 110 hours