Discuss the benefits of restricting business risk to owners and investors
Please provide the best answer for the statement.
If business risk is assumed only by the firm’s owners and investors it is easier to attract employees and suppliers. Many individuals prefer to avoid risk and like the certainty that a regular paycheck offers. Limiting the risk these individuals bear attracts them to the market.
Another benefit of restricting who bears business risk is that it focuses responsibility and rewards for enduring the risk onto the owners and investors of a firm. The focus of business risk on a relatively small number of people ensures that they are making prudent decisions about the allocation of resources. In a command system, there are many individuals involved in managing risk. This makes it difficult for a sole individual or small group of individuals to assume responsibility for a bad outcome.
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Because information is scarce
A) helps explain why equity contracts are used so much more frequently to raise capital than are debt contracts. B) monitoring managers gives rise to costly state verification. C) government regulations, such as standard accounting principles, have no impact on problems such as moral hazard. D) developing nations do not rely heavily on banks for business financing.
An increase in the interest rate will increase the demand for loanable funds
a. True b. False Indicate whether the statement is true or false
If the Fed buys government securities on the open market, the money supply will contract
Indicate whether the statement is true or false
Which of the following statements is true?
A) If a nation can produce more of a good than another nation can, it has a comparative advantage in the production of that good. B) Comparative advantage results from a lower opportunity cost of production. C) Absolute advantage results from having more resources. D) Absolute advantage means that an individual or country can produce more of a particular good than can any other individual or country.