Faisal Is Gathering Items to Donate to a Local Charity

question 19

Multiple Choice

Faisal is gathering items to donate to a local charity thrift shop, including an old backpack. As he takes the items out, his suitemate Kendrick asks if he could have the backpack. Kendrick offers Faisal one of his energy drinks (worth $6) in exchange, which Faisal happily accepts. Faisal has achieved a producer surplus of

• A) $0, since he was just going to give the backpack away.
• B) $6, the value of the energy drink received.
• C) $3 because Faisal and Kendrick benefited equally from the $6 transaction.
• D) $20 because that is what the backpack was likely worth.

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Definitions:

Present Value

The present worth of a future sum of money or series of cash flows, considering a given return rate.

Compound Interest

In this method, interest is accrued on the principal sum as well as on the interest that has been accumulated over prior periods of the investment or loan.

Earnings Rate

The rate of return on an investment or the rate at which a company or asset is generating income, often expressed as a percentage.

Capital Rationing

A financial strategy employed by companies to limit or restrict the amount of new investments or projects they undertake due to limited resources.