Final answer:
A capacitor reduces arcing at the points and aids in the collapsing of the magnetic field in a magneto, essential for efficient ignition system operation.
Step-by-step explanation:
The component that reduces arcing in the points and helps in the collapsing of the magnetic field in a magneto is a capacitor. Arcing is undesirable because it can cause damage and result in inefficient operation. A capacitor connected across the breaker points in a magneto can absorb the energy that leads to arcing, while also speeding up the collapse of the magnetic field, which is necessary to induce a good spark. This quick collapse of the magnetic field is crucial for generating a high voltage spike in the ignition system. In contrast, resistors dissipate power, inductors store magnetic energy, and diodes allow current to flow in only one direction.