Discuss whether the economy would be more or less efficient if public corporations issued fewer shares of stock.
What will be an ideal response?
The economy would probably be less efficient. If corporations needed to raise the same amount of capital but did so using fewer shares, the share prices would increase. The result would be fewer participants in the equity markets and less liquidity in the market which will decrease efficiency since stocks would be less attractive. Also, with low share prices many more people participate in the stock market which means a larger source of funds for companies seeking financing and basic principles of economics tells us that the greater the supply, everything else constant, the lower the price. And finally, with many more participants in the stock market we have a market that performs closer to the competitive market model where no one participant can exert considerable influence over the price. The increased competition leads to not only greater efficiency due to lower prices, but a better flow of information that allocates resources to their most efficient use.
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The United States imports shoes from third world countries. This means that if the U.S. economy were closed, the domestic price of goods would be ________ the world price of shoes.
A. greater than B. close to C. less than D. equal to
When there is a tendency for a particular product to come into favor with additional consumers because other consumers have chosen to purchase the product
A) negative market feedback occurs. B) positive market feedback occurs. C) there is no dominant strategy. D) a price war must result.
Costs that are "fixed":
A. depend on what timescale you are thinking. B. are those that will never change. C. vary with output, but not with resource prices. D. None of these is true.
Unlike implicit costs, explicit costs
a. reflect opportunity costs b. include the value of the owner's time c. are not included in a firm's accounting statements d. are actual cash payments e. do not change as a firm's output changes