Financial Slack

question 13

Multiple Choice

Financial slack:

• A) is associated with high leverage
• B) allows firms to take advantage of good investment opportunities
• C) solves any agency costs when managers want to empire-build
• D) is a term that describes a lazy CFO

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Definitions:

Binding Price Floor

A government-imposed price control that sets the minimum price above the equilibrium price, causing a surplus in the market.

Deadweight Loss

An economic inefficiency caused by a deviation from the optimal allocation of resources, often resulting from market distortions like taxes or subsidies.

Equilibrium Quantity

The quantity of goods or services supplied is equal to the quantity demanded at the market equilibrium price.

Binding Price Floor

A legally established minimum price above the equilibrium price, causing a surplus in the market.