If an Investor Buys Enough Stocks, He or She Can

question 57

True/False

If an investor buys enough stocks, he or she can, through diversification, eliminate all of the market risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all diversifiable risk.

Comprehend the revenue recognition principle and its application to merchandising entities.

Understand the perpetual and periodic inventory systems and their impact on accounting records.

Recognize the accounting treatment for sales returns, allowances, and discounts.

Comprehend the significance and calculation of gross profit in merchandising operations.

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Definitions:

Binding Price Ceiling

A government-imposed price limit on how high a price can be charged for a product or service, set below the market equilibrium, causing shortages.

Producer Surplus

The difference between what producers are willing to sell a good for and the actual market price they receive, essentially the profit producers earn from selling a good.

Consumer Surplus

The variance in the sum total consumers are enthusiastic and financially able to spend on a good or service versus what they end up paying.

Cost of Production

The complete cost involved in producing a product or offering a service, which encompasses the price of raw materials, workforce expenses, and overhead charges.