last homework - The market failure that we discussed in...

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Optimally, I should invest $10 in Fund A because the fund is a safe haven and even though it’s not earning interest but I can also not lose any money. If I put my $10 in, I will get my $10 back. Then, if everyone puts their money in B, by using the following formula Ri = ((I1 + I2 + I3 + I4 + I5) *4)/5, I can determine that I would end up receiving $42. I would not follow this strategy in the “real world” because it would result in others not wanting to do business with me and my group.
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Unformatted text preview: The market failure that we discussed in class that is represented in this situation is externalities because you cannot control how much you receive back. Like the dorm room example, in this situation you got what you paid for as well as what you didnt pay for. Externalities, external costs and benefits, are activities that generate costs or benefits that accrue to people not directly involved in those activities like the situation presented in this case....
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This note was uploaded on 03/21/2012 for the course ECO 201 taught by Professor Dunlevy during the Spring '08 term at Miami University.

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