Which of the Following Scenarios Is an Example of the Precautionary

question 40

Multiple Choice

Which of the following scenarios is an example of the precautionary motive to hold cash?

• A)A retailer holds a reserve of cash in case customers return products for a cash refund.
• B)A bank holds cash on deposit for its customers.
• C)A car dealership holds cash to pay its utility bill.
• D)A small business pays a cash dividend to its owner because she's not sure she will have enough funds to pay for Christmas gifts for her family.

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Definitions:

Marginal Revenue

The revenue uplift from marketing one more unit of a product or service.

Competitive Firm's Supply Curve

A graphical representation showing the quantity of goods a firm is willing and able to supply at each possible price, under the assumption of perfect competition.

Marginal Cost Curve

A curve depicting the change in the total cost of production when the output is increased by one more unit, essentially showing the cost of producing an additional unit.

Purely Competitive Market

A market structure characterized by many buyers and sellers, homogeneous products, and the absence of barriers to entry or exit.