Explain the difference between financing investment with a business loan versus with venture capital. What are the pros and cons of each?
What will be an ideal response?
Financing with a loan involves accepting an obligation to repay a debt. Financing with venture capital involves accepting funds in exchange for a portion of ownership of the company. With a loan a business owner retains control of her company but must generate enough profit to cover operating costs and loan payments. This may not be possible for a new company. With venture capital there is no obligation to repay the funds. However, a business owner must forfeit some profits and control of her company to the venture capitalist.
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A positive externality exists and government wants to impose a subsidy in order to bring about an efficient outcome. To accomplish its objective, government must set the subsidy equal to marginal
A. private cost. B. social benefit. C. external cost. D. social cost. E. external benefit.
Which one of the following must a central bank must be concerned about driving most of the country’s existing banks into bankruptcy?
a. a large and unexpected exchange rate appreciation b. a large and unexpected interest rate increase c. a large and unexpected exchange rate depreciation d. a large and unexpected increase in foreign investments
You value your favorite shirt at $110. Someone else values it at $150, and that person is willing to pay you $120 for your shirt. Would selling your shirt to this person for $120 be Pareto efficient?
A. Yes, because even though you gain from the trade and he loses, there is the potential for you to compensate him for his loss. B. No, the person paid you $120 for the shirt so his net benefit was $30, while your net benefit was $10. For this change to be Pareto efficient, each of you should have the same net benefit. C. Yes, because both of you are better off as a result of the trade. D. No, because you did not receive the maximum amount the other person would have been willing to pay for the shirt.
If the demand curve for wheat is inelastic, then total farm income from wheat will be:
A. Higher in years of low yields and lower in years of high yields B. Lower in years of low yields and higher in years of high yields C. Higher in years of falling prices D. Lower in years of rising prices