Multiple Choice
Given a table showing the maximum willingness to pay for each unit of a good and the market price, how do you calculate the total consumer surplus?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
When an investor is diversified, only ________ risk matters.
A
market-specific
B
systematic
C
unsystematic
D
idiosyncratic
Verified step by step guidance1
Understand the difference between systematic and unsystematic risk: Systematic risk, also known as market risk, affects the entire market or economy, while unsystematic risk is specific to a particular company or industry.
Recognize that diversification reduces unsystematic risk by spreading investments across various assets, thereby minimizing the impact of any single asset's poor performance.
Recall that systematic risk cannot be eliminated through diversification because it is inherent to the entire market and affects all investments to some degree.
Conclude that when an investor is diversified, the only risk that truly matters and cannot be diversified away is systematic risk.
Therefore, the correct term to fill in the blank is 'systematic' risk, as it represents the unavoidable risk faced by diversified investors.
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