When an Economist Assumes That the Owners of Firms Are

question 17

Multiple Choice

When an economist assumes that the owners of firms are motivated only by the desire to maximize profits, the economist most likely believes that

• A)it doesn't matter whether or not the assumption is descriptively accurate; what matters is whether a theory built on the assumption predicts well.
• B)all people enter business for their own selfish gain.
• C)individuals entering business are quite narrow in their personal objectives.
• D)the assumption is inaccurate, since surveys have been taken and the owners of firms have admitted that they care about more than just profits.
• E)the assumption is descriptively accurate, since surveys have been taken and the owners of firms have admitted that their only objective is to maximize profits.

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Definitions:

Stock Price

The stock price is the cost of a single share of a company's stock, reflecting the market's value and investors' perceptions of the company's future prospects.

Shares Outstanding

Shares outstanding refer to the total number of shares of a company’s stock that are currently owned by all its shareholders, including shares held by institutional investors and restricted shares owned by the company’s officers and insiders.

Expectations Theory

A hypothesis in finance that the long-term interest rates reflect expected future short-term rates, adjusting for risk premium.

Dividend Distribution

The payment of a portion of a company's earnings to its shareholders, usually in the form of cash or additional stock.