Econ 211: Test 2 - Custom Scholars
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# Econ 211: Test 2

question
Which of the following factors is always present in consumer decision making?

a. scarcity
b. taxes
d. high prices
e. changing consumer tastes
Scarcity
question
Modern economists measure how much utility Fred gets from a hot dog by
asking Fred how much of some other good he would give up to get the hot dog. The "other good" can be any good, including money.
question
A consumer possesses five pounds of bananas and values their total utility at \$2.14. If one additional pound is acquired and marginal utility is 11 cents, total utility will
rise to \$2.25.
question
Elaine values the utility of her first cup of coffee at \$1; a second cup, \$.75; and a third cup, \$.50. If Elaine drinks three cups of coffee for breakfast, her total utility is equal to
\$2.25
question
The host at a party offers Justin a sixth beer. Justin says, "No thanks, man. The marginal utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be minus 10 cents." If Justin consumes the sixth beer, his total utility will
fall by 10 cents
question
Net utility is
equal to total utility from the quantity acquired of a good minus the utility lost by having to pay for it.
question
Marginal utility has a negative slope. This is because of the
law of diminishing marginal utility.
question
Gwen's decision to buy a new television instead of a bicycle for the same price
means that the opportunity cost to Gwen is the bicycle that she has given up.
question
Resolving Adam Smith's diamond-water puzzle involves
knowing that, as increasing quantities of a good are consumed, marginal utility diminishes and, conversely, consuming a small quantity of a good produces high marginal utility.

knowing that at optimal purchase, price will tend to equal marginal utility.

realizing that price is not directly related to total utility.
question
An inferior good is a good whose quantity demanded
rises when the consumer's real income falls.
question
When the price of one product falls,
consumers' real income will increase.
question
The Wall Street Journal reports that "hard times aid poultry companies as people eat cheaper fowl." In the language of economists, this means
chicken is an inferior good.
question
Market demand curves may slope downward even if some individual demand curves do not because
lower prices may bring more purchasers into the market.
question
The law of demand states that as the price
increases, total quantity demanded will decrease.
question
An increase in a family's income will cause its budget line to
move away from the origin.
question
What would happen to the budget line if income as well as prices of both goods increase by the same percentage?
No shift in the budget line.
question
Figure 5-5 shows a consumer budget line for French fries and hamburgers. The household allocates a budget for these two goods.. If the price of an order of french fries is \$2, how much income is allocated to fries and burgers combined?
\$20
question
Which of the following observations is not true of a budget line?
It helps examine the consumer's preferences.
question
Which of the following is characteristic of indifference curves?
They are convex toward the origin.
They are negatively sloped.
They never intersect.
question
In Figure 5-11, a consumer is initially at point A. There is a price change and she moves to B. It follows that
the demand for beer does not follow the law of demand.
question
In Figure 5-12, the move in the consumer equilibrium from A to B shows that
both beer and wine are normal goods.
question
In Figure 5-13, the line AB is
a budget line
question
In Figure 5-13, the consumer can afford any combination of X and Y represented by a point
on or below line AB.
question
equally well off at C and D but only able to afford C.
question
In Figure 5-17, which of the marked points would an economist use to help him construct a single demand curve for X?
A and D
question
The slope of an indifference curve is called the
marginal rate of substitution.
question
Elasticity
employs percentage changes calculated in terms of average values of the prices and quantities at issue.

deals with percentage changes in price and quantity demanded.

is generally stated in absolute value.
question
Price elasticity of demand is defined as
percentage change in quantity demanded divided by percentage change in price.
question
Demand is said to be price elastic at a point on a demand curve if a
1 percent rise in price reduces the quantity demanded by more than 1 percent.
question
Demand is said to be elastic when percentage changes in quantity demanded are
higher than the percentage changes in price.
question
In Figure 6-2, the price elasticity of demand (dropping all minus signs) is ____ between P = 4 and P = 6 than between P = 10 and P = 12 because between the lower set of prices the percentage change in price is ____.
smaller; greater
question
In Figure 6-3(a), at any price above \$6, quantity demanded
falls to zero
question
If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,
demand is elastic
question
The price elasticity of a horizontal demand curve is always
infinitely large
question
Along a straight-line demand curve the
slope is constant.

elasticity grows much smaller toward the right-hand end.

ratio P/Q constantly changes.
question
A price cut will increase the revenue a firm receives if the demand for its product is
elastic
question
If two goods are complements, their cross elasticity of demand will normally be
a negative number
question
If goods X and Y are complements, the
quantities demanded of X and Y tend to move in the same direction.
question
Cross elasticity of demand for
substitutes will normally be negative
question
If the cross elasticity of demand for potato chips and pretzels equals 1.5,
potato chips and pretzels must be substitutes
question
A rightward shift in the demand curve for a product will ordinarily result from
an increase in consumer
question
​Regarding the price elasticities of demand, which of the following statements is true?
​Price elasticities vary considerably from product to product
question
The short run is the time period during which
some of the firm's costs are fixed
question
In the long run,
all of the firm's input quantities are variable
question
In the short run,
firms have relatively little opportunity to change production progress.
question
Some costs cannot be varied no matter how long the period in question. These are called
fixed costs
question
Marginal physical product can tell a producer
how much the last input added to the total amount of production.
question
In Table 7-1, the marginal physical product of labor after the addition of the fourth worker is
8
question
The marginal physical product of an input is the
addition to output from using one more unit of input
question
The optimum quantity of an input occurs when
marginal revenue product equals input price
question
Marginal cost
-is the cost of the marginal unit of output. -and the average cost curve are U-shaped.
-is the increase in total cost resulting from production of one additional unit of output.
question
A factory produces 1,000 radios a year, AVC = \$10 and TFC = \$5,000. The factory's TC
equals \$15,000
question
In Figure 7-2, average cost at 500 units of output equals
8
question
total fixed cost
is constant at all levels of output
question
In Figure 7-7 at 100 units, AFC equals
10
question
Average cost curves decline because
fixed cost is spread out over larger amounts of production.
question
The long-run average cost curve
- is a composite of short-run AC curves.
- depends on the firm's planning horizon.
- shows the lowest possible short-run AC corresponding to each output level.
question
When economies of scale exist,
production costs per unit decline as output expands.
question
If doubling the quantity of inputs more than doubles the quantity of outputs, the firm is experiencing
increasing returns to scale
question
A firm can choose a quantity of output, and the price is then determined by
consumers demand
question
Profit maximization is
behavioral assumption to simplify analysis
question
total profit equals
-average profit times total output
-total sales revenue minus total cost
-TR-TC
question
Total profit = Total revenue − Total cost (including opportunity cost).

Total profit defined in this way is called
economic profit
question
The difference between economic profit and accountant's definition of profit is that an economist's total cost counts the ____ of inputs.
opportunity cost
question
Marginal revenue is the addition to a firm's revenue from
a one-unit change in output
question
total revenue
- can be calculated directly from the demand curve.
- can be calculated directly from the average revenue curve.
- is found by multiplying price times quantity.
question
Which of the following is true if the opportunity cost of producing a particular good is less than its accounting profit?

a. Economic profit is positive.
b. Economic profit is zero.
c. Economic profit cannot be determined.
d. Economic profit is negative.
A. Economic profit is positive
question
Whenever average cost exceeds marginal cost,
average cost is falling
question
average cost
declines for some range of output, hits a minimum, and then increases.
question
Marginal cost,
- is calculated as DTC/DQ.
- equals the slope of the total cost curve.
- is the increase in total cost resulting from a one-unit increase in output.
question
Total profit is maximized
where the difference between total revenue and total cost is greatest.
question
Profit can be maximized only where marginal revenue equals
marginal cost
question
If MC>MR then
output should be reduced
question
Once the profit-maximizing output where MR = MC is determined, price is set by
the demand curve
question
A firm's fixed cost
does not vary with output
question
True or False: If a corporation is unable to repay its debts, the creditors to whom the debt is owed may sue an individual stockholder for more than he or she invested in the corporation.
false: Stockholders in a corporation face limited liability. In the event that the corporation fails to pay its debt, each stockholder is liable for no more than he or she invested in the company. Limited liability allows many individuals to buy shares of a company without the fear of losing more than they put in. This is not the case in a partnership or a sole proprietorship.
question
A share of Dell stock represents:
A claim on Dell's assests that gives the purchaser a share of ownership of the
Corporation.

Explanation: A share of corporate stock represents partial ownership in a corporation. Consequently, a share of Dell stock is a claim on Dell's assets that gives the purchaser a share of the corporation. For example, if someone owns 10% of the shares of a company, that individual is entitled to 10% of the company's dividends. Shareholders also vote in elections of corporate officers and corporate policies.
Finally, stocks are not risk-free. The value of the company may decline—and if it does, the value of that company's stock will decline as well. A bond issued by Dell represents an IOU, or promise to pay, from Dell.
question
General Finance Ltd. (GFL) issues 10-year bonds in 2011 with a \$2,000 face value and a \$100 coupon.
The interest rate at which GFL issues these bonds is________ .
5%

Each year, GFL pays \$100 for every \$2,000 it has borrowed. This corresponds to an annual interest rate of
(\$100/\$2,000) = 0.05 or 5%
question
When the bond reaches maturity in 2021, how much will each investor holding one of these GFL bonds receive?
The initial investment of \$2,000 plus \$100 for the 10th coupon

Explanation: A company pays interest on its loans as long as the loan is outstanding and pays back the principal at the end of the term of the loan. Therefore, in the final year of the loan, GFL would pay \$2,000 to each holder of its bonds plus the interest from the last year. (It will already have paid \$900 in coupons over the previous nine years.)
question
Suppose interest rise dramatically. The market price of these GFL bonds will ________
decrease

Explanation/Example:
Bond prices and interest rates move in opposite directions. If interest rates rise, companies currently borrowing money will be offering higher coupons than GFL. Therefore, the value of holding a GFL bond will drop. Conversely, if interest rates fall, companies currently borrowing money will be offering lower coupons than GFL, and the value of holding a GFL bond will rise.

For example, if you were to buy a GFL bond in 2020, you would, in fact, be buying an IOU for \$2,100, to be paid in one year. If the market interest rate in 2020 were 10%—that is, if the rate of return from other investment options were 10%—then the most you would be willing to pay for this IOU is approximately \$1,909, since \$1,909 invested at 10% interest would grow to become 2,100 in one year. On the other hand, if the market interest rate were 2.5%, then you would be willing to pay about \$2,049 for this IOU, since \$2,049 invested at 2.5% interest would grow to become approximately \$2,100 in one year.
question
Suppose a corporation earns a before-tax profit of \$377 million. The firm pays \$151 million in corporate taxes and \$38 million in dividends to its stockholders. It reinvests the remaining profit in the firm.

The value of the firm's plowback is
\$188 million

Plowback (or retained earnings) is the fraction of a corporation's profit that management decides to reinvest in the firm. In this case, the firm reinvests everything that it does not pay out in the form of taxes or dividends. Retained earnings are equal to \$377 million−\$151 million−\$38 million=\$188 million .
question
Which of the following are popular stock exchanges in the United States? Check all that apply.
- National Association of Securities Dealers Automated Quotations (NASDAQ)
- New York Stock Exchange (NYSE)

A stock exchange is a physical or virtual location where stocks are bought and sold. The NYSE, AMEX, and NASDAQ are three popular stock exchanges in the United States. A stock index, such as the Standard & Poor's 500 (S&P 500) or the Wilshire 5000 index, is a number that indicates the average of a large number of stock prices, with stocks selected to represent the overall market or some segment of the market.
question
If a company's stock price is very low in comparison with the value of its assets, it may be subjected to:
A takeover

A takeover is the acquisition by an outside group of a controlling proportion of a company's stock. When a company's stock price is very low in comparison with the value of its assets, it becomes a tempting target for a takeover.
Circuit breakers are a series of rules, self-imposed by stock markets, that halt all trading for a short period of time when a stock index falls below its previous day's closing value by a defined percentage amount. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is a financial regulatory act passed by the United States Congress in response to the financial crisis of 2007-2009.
question
Suppose a soybean farmer is concerned that the price of soybeans will decline before harvest time. In order to protect against this risk, the farmer signs a futures contract with a speculator for delivery of the harvested soybeans at a preset price.

In this case, the speculator will suffer a loss if the future price of soybeans turns out to be ________ than the contracted price.
lower

By entering into a futures contract, the farmer receives a guaranteed price for his soybean crop and does not have to worry about falling prices. The speculator will suffer a loss only if the soybean prices turn out to be lower than the contracted price—in which case the speculator would have to sell the soybeans at a loss.
question
_________ consists of the use of borrowed money to purchase assets. It magnifies _________ both losses and gains from an investment.
Leverage; both losses and gains

Leverage consists of the use of borrowed money to purchase assets. It magnifies both losses and gains. One of the reasons behind the severity of the financial crisis of 2007-2009 was that many financial firms were highly leveraged, thus magnifying their losses.
question
The decision to hold a variety of corporate stocks and bonds rather than investing in only one or two corporations is known as
portfolio diversification

An investor's collection of securities (stocks, bonds, and other assets) is known as a portfolio. To avoid overexposure to the risk associated with one type of security, investors typically acquire a large variety of securities. The practice of reducing risk by holding a wide variety of securities is known as portfolio diversification.
1 of 86
question
Which of the following factors is always present in consumer decision making?

a. scarcity
b. taxes
d. high prices
e. changing consumer tastes
Scarcity
question
Modern economists measure how much utility Fred gets from a hot dog by
asking Fred how much of some other good he would give up to get the hot dog. The "other good" can be any good, including money.
question
A consumer possesses five pounds of bananas and values their total utility at \$2.14. If one additional pound is acquired and marginal utility is 11 cents, total utility will
rise to \$2.25.
question
Elaine values the utility of her first cup of coffee at \$1; a second cup, \$.75; and a third cup, \$.50. If Elaine drinks three cups of coffee for breakfast, her total utility is equal to
\$2.25
question
The host at a party offers Justin a sixth beer. Justin says, "No thanks, man. The marginal utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be minus 10 cents." If Justin consumes the sixth beer, his total utility will
fall by 10 cents
question
Net utility is
equal to total utility from the quantity acquired of a good minus the utility lost by having to pay for it.
question
Marginal utility has a negative slope. This is because of the
law of diminishing marginal utility.
question
Gwen's decision to buy a new television instead of a bicycle for the same price
means that the opportunity cost to Gwen is the bicycle that she has given up.
question
Resolving Adam Smith's diamond-water puzzle involves
knowing that, as increasing quantities of a good are consumed, marginal utility diminishes and, conversely, consuming a small quantity of a good produces high marginal utility.

knowing that at optimal purchase, price will tend to equal marginal utility.

realizing that price is not directly related to total utility.
question
An inferior good is a good whose quantity demanded
rises when the consumer's real income falls.
question
When the price of one product falls,
consumers' real income will increase.
question
The Wall Street Journal reports that "hard times aid poultry companies as people eat cheaper fowl." In the language of economists, this means
chicken is an inferior good.
question
Market demand curves may slope downward even if some individual demand curves do not because
lower prices may bring more purchasers into the market.
question
The law of demand states that as the price
increases, total quantity demanded will decrease.
question
An increase in a family's income will cause its budget line to
move away from the origin.
question
What would happen to the budget line if income as well as prices of both goods increase by the same percentage?
No shift in the budget line.
question
Figure 5-5 shows a consumer budget line for French fries and hamburgers. The household allocates a budget for these two goods.. If the price of an order of french fries is \$2, how much income is allocated to fries and burgers combined?
\$20
question
Which of the following observations is not true of a budget line?
It helps examine the consumer's preferences.
question
Which of the following is characteristic of indifference curves?
They are convex toward the origin.
They are negatively sloped.
They never intersect.
question
In Figure 5-11, a consumer is initially at point A. There is a price change and she moves to B. It follows that
the demand for beer does not follow the law of demand.
question
In Figure 5-12, the move in the consumer equilibrium from A to B shows that
both beer and wine are normal goods.
question
In Figure 5-13, the line AB is
a budget line
question
In Figure 5-13, the consumer can afford any combination of X and Y represented by a point
on or below line AB.
question
equally well off at C and D but only able to afford C.
question
In Figure 5-17, which of the marked points would an economist use to help him construct a single demand curve for X?
A and D
question
The slope of an indifference curve is called the
marginal rate of substitution.
question
Elasticity
employs percentage changes calculated in terms of average values of the prices and quantities at issue.

deals with percentage changes in price and quantity demanded.

is generally stated in absolute value.
question
Price elasticity of demand is defined as
percentage change in quantity demanded divided by percentage change in price.
question
Demand is said to be price elastic at a point on a demand curve if a
1 percent rise in price reduces the quantity demanded by more than 1 percent.
question
Demand is said to be elastic when percentage changes in quantity demanded are
higher than the percentage changes in price.
question
In Figure 6-2, the price elasticity of demand (dropping all minus signs) is ____ between P = 4 and P = 6 than between P = 10 and P = 12 because between the lower set of prices the percentage change in price is ____.
smaller; greater
question
In Figure 6-3(a), at any price above \$6, quantity demanded
falls to zero
question
If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,
demand is elastic
question
The price elasticity of a horizontal demand curve is always
infinitely large
question
Along a straight-line demand curve the
slope is constant.

elasticity grows much smaller toward the right-hand end.

ratio P/Q constantly changes.
question
A price cut will increase the revenue a firm receives if the demand for its product is
elastic
question
If two goods are complements, their cross elasticity of demand will normally be
a negative number
question
If goods X and Y are complements, the
quantities demanded of X and Y tend to move in the same direction.
question
Cross elasticity of demand for
substitutes will normally be negative
question
If the cross elasticity of demand for potato chips and pretzels equals 1.5,
potato chips and pretzels must be substitutes
question
A rightward shift in the demand curve for a product will ordinarily result from
an increase in consumer
question
​Regarding the price elasticities of demand, which of the following statements is true?
​Price elasticities vary considerably from product to product
question
The short run is the time period during which
some of the firm's costs are fixed
question
In the long run,
all of the firm's input quantities are variable
question
In the short run,
firms have relatively little opportunity to change production progress.
question
Some costs cannot be varied no matter how long the period in question. These are called
fixed costs
question
Marginal physical product can tell a producer
how much the last input added to the total amount of production.
question
In Table 7-1, the marginal physical product of labor after the addition of the fourth worker is
8
question
The marginal physical product of an input is the
addition to output from using one more unit of input
question
The optimum quantity of an input occurs when
marginal revenue product equals input price
question
Marginal cost
-is the cost of the marginal unit of output. -and the average cost curve are U-shaped.
-is the increase in total cost resulting from production of one additional unit of output.
question
A factory produces 1,000 radios a year, AVC = \$10 and TFC = \$5,000. The factory's TC
equals \$15,000
question
In Figure 7-2, average cost at 500 units of output equals
8
question
total fixed cost
is constant at all levels of output
question
In Figure 7-7 at 100 units, AFC equals
10
question
Average cost curves decline because
fixed cost is spread out over larger amounts of production.
question
The long-run average cost curve
- is a composite of short-run AC curves.
- depends on the firm's planning horizon.
- shows the lowest possible short-run AC corresponding to each output level.
question
When economies of scale exist,
production costs per unit decline as output expands.
question
If doubling the quantity of inputs more than doubles the quantity of outputs, the firm is experiencing
increasing returns to scale
question
A firm can choose a quantity of output, and the price is then determined by
consumers demand
question
Profit maximization is
behavioral assumption to simplify analysis
question
total profit equals
-average profit times total output
-total sales revenue minus total cost
-TR-TC
question
Total profit = Total revenue − Total cost (including opportunity cost).

Total profit defined in this way is called
economic profit
question
The difference between economic profit and accountant's definition of profit is that an economist's total cost counts the ____ of inputs.
opportunity cost
question
Marginal revenue is the addition to a firm's revenue from
a one-unit change in output
question
total revenue
- can be calculated directly from the demand curve.
- can be calculated directly from the average revenue curve.
- is found by multiplying price times quantity.
question
Which of the following is true if the opportunity cost of producing a particular good is less than its accounting profit?

a. Economic profit is positive.
b. Economic profit is zero.
c. Economic profit cannot be determined.
d. Economic profit is negative.
A. Economic profit is positive
question
Whenever average cost exceeds marginal cost,
average cost is falling
question
average cost
declines for some range of output, hits a minimum, and then increases.
question
Marginal cost,
- is calculated as DTC/DQ.
- equals the slope of the total cost curve.
- is the increase in total cost resulting from a one-unit increase in output.
question
Total profit is maximized
where the difference between total revenue and total cost is greatest.
question
Profit can be maximized only where marginal revenue equals
marginal cost
question
If MC>MR then
output should be reduced
question
Once the profit-maximizing output where MR = MC is determined, price is set by
the demand curve
question
A firm's fixed cost
does not vary with output
question
True or False: If a corporation is unable to repay its debts, the creditors to whom the debt is owed may sue an individual stockholder for more than he or she invested in the corporation.
false: Stockholders in a corporation face limited liability. In the event that the corporation fails to pay its debt, each stockholder is liable for no more than he or she invested in the company. Limited liability allows many individuals to buy shares of a company without the fear of losing more than they put in. This is not the case in a partnership or a sole proprietorship.
question
A share of Dell stock represents:
A claim on Dell's assests that gives the purchaser a share of ownership of the
Corporation.

Explanation: A share of corporate stock represents partial ownership in a corporation. Consequently, a share of Dell stock is a claim on Dell's assets that gives the purchaser a share of the corporation. For example, if someone owns 10% of the shares of a company, that individual is entitled to 10% of the company's dividends. Shareholders also vote in elections of corporate officers and corporate policies.
Finally, stocks are not risk-free. The value of the company may decline—and if it does, the value of that company's stock will decline as well. A bond issued by Dell represents an IOU, or promise to pay, from Dell.
question
General Finance Ltd. (GFL) issues 10-year bonds in 2011 with a \$2,000 face value and a \$100 coupon.
The interest rate at which GFL issues these bonds is________ .
5%

Each year, GFL pays \$100 for every \$2,000 it has borrowed. This corresponds to an annual interest rate of
(\$100/\$2,000) = 0.05 or 5%
question
When the bond reaches maturity in 2021, how much will each investor holding one of these GFL bonds receive?
The initial investment of \$2,000 plus \$100 for the 10th coupon

Explanation: A company pays interest on its loans as long as the loan is outstanding and pays back the principal at the end of the term of the loan. Therefore, in the final year of the loan, GFL would pay \$2,000 to each holder of its bonds plus the interest from the last year. (It will already have paid \$900 in coupons over the previous nine years.)
question
Suppose interest rise dramatically. The market price of these GFL bonds will ________
decrease

Explanation/Example:
Bond prices and interest rates move in opposite directions. If interest rates rise, companies currently borrowing money will be offering higher coupons than GFL. Therefore, the value of holding a GFL bond will drop. Conversely, if interest rates fall, companies currently borrowing money will be offering lower coupons than GFL, and the value of holding a GFL bond will rise.

For example, if you were to buy a GFL bond in 2020, you would, in fact, be buying an IOU for \$2,100, to be paid in one year. If the market interest rate in 2020 were 10%—that is, if the rate of return from other investment options were 10%—then the most you would be willing to pay for this IOU is approximately \$1,909, since \$1,909 invested at 10% interest would grow to become 2,100 in one year. On the other hand, if the market interest rate were 2.5%, then you would be willing to pay about \$2,049 for this IOU, since \$2,049 invested at 2.5% interest would grow to become approximately \$2,100 in one year.
question
Suppose a corporation earns a before-tax profit of \$377 million. The firm pays \$151 million in corporate taxes and \$38 million in dividends to its stockholders. It reinvests the remaining profit in the firm.

The value of the firm's plowback is
\$188 million

Plowback (or retained earnings) is the fraction of a corporation's profit that management decides to reinvest in the firm. In this case, the firm reinvests everything that it does not pay out in the form of taxes or dividends. Retained earnings are equal to \$377 million−\$151 million−\$38 million=\$188 million .
question
Which of the following are popular stock exchanges in the United States? Check all that apply.
- National Association of Securities Dealers Automated Quotations (NASDAQ)
- New York Stock Exchange (NYSE)

A stock exchange is a physical or virtual location where stocks are bought and sold. The NYSE, AMEX, and NASDAQ are three popular stock exchanges in the United States. A stock index, such as the Standard & Poor's 500 (S&P 500) or the Wilshire 5000 index, is a number that indicates the average of a large number of stock prices, with stocks selected to represent the overall market or some segment of the market.
question
If a company's stock price is very low in comparison with the value of its assets, it may be subjected to:
A takeover

A takeover is the acquisition by an outside group of a controlling proportion of a company's stock. When a company's stock price is very low in comparison with the value of its assets, it becomes a tempting target for a takeover.
Circuit breakers are a series of rules, self-imposed by stock markets, that halt all trading for a short period of time when a stock index falls below its previous day's closing value by a defined percentage amount. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is a financial regulatory act passed by the United States Congress in response to the financial crisis of 2007-2009.
question
Suppose a soybean farmer is concerned that the price of soybeans will decline before harvest time. In order to protect against this risk, the farmer signs a futures contract with a speculator for delivery of the harvested soybeans at a preset price.

In this case, the speculator will suffer a loss if the future price of soybeans turns out to be ________ than the contracted price.
lower

By entering into a futures contract, the farmer receives a guaranteed price for his soybean crop and does not have to worry about falling prices. The speculator will suffer a loss only if the soybean prices turn out to be lower than the contracted price—in which case the speculator would have to sell the soybeans at a loss.
question
_________ consists of the use of borrowed money to purchase assets. It magnifies _________ both losses and gains from an investment.
Leverage; both losses and gains

Leverage consists of the use of borrowed money to purchase assets. It magnifies both losses and gains. One of the reasons behind the severity of the financial crisis of 2007-2009 was that many financial firms were highly leveraged, thus magnifying their losses.
question
The decision to hold a variety of corporate stocks and bonds rather than investing in only one or two corporations is known as
portfolio diversification

An investor's collection of securities (stocks, bonds, and other assets) is known as a portfolio. To avoid overexposure to the risk associated with one type of security, investors typically acquire a large variety of securities. The practice of reducing risk by holding a wide variety of securities is known as portfolio diversification.

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