Why Is Business Failure a Necessary Phenomenon in a Free

question 260

Multiple Choice

Why is business failure a necessary phenomenon in a free economy?

• A) It allows governments to choose which industries to help.
• B) It allows entrepreneurs to deduct losses from their taxes.
• C) It shifts resources from areas of higher demand to areas of lower demand.
• D) It provides an incentive for firms to be efficient and to innovate.

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Definitions:

Strike Price

The fixed price at which the holder of an option can buy (call option) or sell (put option) the underlying security or commodity.

Call Options

Financial contracts that give the buyer the right, but not the obligation, to buy an underlying asset at a specified price within a certain time period.

Volatile

Characterized by or subject to rapid or unexpected changes, especially in the context of financial markets or securities prices.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a specific time period.