When a market is incomplete,
A)subject to his budget constraint, an individual can achieve any desired distribution of income
B)an individual has a limited ability to manage uncertainty
C)the introduction of new securities generally make individuals better off
D)both a and c
E)both b and c.

Question

When a market is incomplete,
A)subject to his budget constraint, an individual can achieve any desired distribution of income 
B)an individual has a limited ability to manage uncertainty
C)the introduction of new securities generally make individuals better off
D)both a and c
E)both b and c.

Quizplus · Accepted Answer

In an incomplete market, individuals have limited ability to manage uncertainty because not all risks can be traded or hedged due to the absence of certain financial instruments. The introduction of new securities can make individuals better off by allowing them more options to hedge against risks or to invest, thus partially completing the market.

When a Market Is Incomplete