Economic Concepts 3

Which of the following is not a valid economic reason for producing a good or service in the public sector?

• The good is a basic commodity consumed by everyone

• It is a public good

• There is a natural monopoly in the production of the good

• It is a merit good

Government introduces a minimum price below free market price. Which one of the following describes the consequences of this?

• There will be no effect on market price or producer incomes

• Suppliers will withdraw from the market due to falling incomes

• Unsold surpluses of the product will build up

• Demand for the product will contract

ABC chocolate manufactures a range of different chocolate novelties for sale in major super markets. It has seasonal trade and finds the period before Christmas difficult from a cash management point of view as it has to pay out wages and for ingredients before the holiday period but often has to wait until the new year before receiving payments from major customers. Which of the following would be a sustainable way this cash flow problem?

• Issue new equity shares

• Overdraft

• Leasing arrangement

• mortgage

TUL have surplus funds that they wish to invest. Which of the following would be the least risky investment?

• Certificates of deposit from a global bank

• Equity shares in a new growing company

• Unsecured loan stock

• National lottery tickets

State whether the following are true or false?

• A rising interest rates will encourage savings and investment

• Interest rates will only affect business investment if that investment is financed by borrowing

• Rising interest rates in a country tend to raise the exchange rate for that country's currency

• Producers of consumer durable goods are more sensitive to changes in interest rates than super markets

• Central banks cannot increase the money supply and raise interest rates at the same time