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a. A firm's demand for financial capital is derived from its demand for b. A firm that decides to invest in additional machinery will its requirements for financial capital c. An increase in the marginal product of capital will lead firms to their desired capital stock and therefore their demand for financial capital. d. An increase in the interest rate will present value of capital's MRP and therefore will be a capital demanded by firms. the firms' desired capital stock. The result in the quantity of financial curve. e. An increase in capital's MRP results in a in the economy's investment demand curve, whereas an increase in the interest rate results in a the economy's investment demand

2. Fill in the blanks to make the following statements correct. a. The marginal cost faced by the private decision maker is know as The marginal cost faced by the private decision maker plus any other costs imposed on third parties is known as If there is a divergence between these two marginal costs, then we can say that are present. b. The marginal benefit to consumers from using some good or service is known as __. The marginal benefit to the consumers plus any benefits accruing to third parties is known as A is present if private marginal benefits are less than social marginal benefits. c. An economic outcome is allocatively efficient when marginal social cost and marginal social benefit are d. Suppose a potato chip plant is operating beside a residential neighbourhood and produces noise and an unpleasant odour. We can say that there is a externality because the marginal social cost of producing potato chips is the marginal private cost of producing potato chips. As a result, the free market is producing too potato chips.

3. Fill in the blanks to make the following statements correct. a. An increase in the interest rate leads households their current spending and to their current saving. The result is a(n)_ the quantity of financial capital supplied. b. An increase in current income leads to a(n) in household saving at any given interest rate. This results in a in the economy's supply curve for capital. c. An increase in expected future income leads to a(n) in current household spending. The in household saving and result is a(n) therefore a(n) in the quantity of capital supplied at any given interest rate. This is represented by a in the economy's supply curve for financial capital. in 4. Fill in the blanks to make the following statements correct. d. A good or service that is rivalrous and excludable (e.g., a restaurant meal or a sofa) is known as a good and is most efficiently provided by the e. A good that is rivalrous and non-excludable (e.g., fish in the ocean or common grazing land) is known as a and tends to be overused by f. Goods that are non-rivalrous and excludable (e.g., roads, museums, and parks) are often provided by government because the marginal cost of provision to society is and so the allocatively efficient price is