Bankruptcy: A. is one of the major flaws of the capitalist system. Since a gover

Question

Bankruptcy:

A. is one of the major flaws of the capitalist system. Since a government can always subsidize a firm an keep it going indefinitely, there is never a good reason to let a firm fail and lay off its workers.

B. only applies to individuals. In the Capitalist system, the capitalists are guaranteed a profit and therefore cannot go bankrupt.

C. is one of the major advantages of a capitalist system compared to a socialist system because it provides a mechanism for failed firm to be "recycled" and replaced by more successful ones.

D. or the threat of bankruptcy, generally impedes a firm's success. Without the threat of bankruptcy most firms would be much more interested in finding new markets and running their firms more efficiently.

2. Once a market equilibrium price has been determined:

A. the price will remain the same unless market demand changes or market supply changes due to changing market forces.

B. it cannot be changed due to changed market conditions. Therefore, it is necessary for the government to update prices once a year to reflect new economic realities.

C. it will change randomly, even when there has been no change in market conditions.

D. by the government, it can only be changed by a vote of the capitalist class in congress.

Explanation / Answer

Question 1

Bankruptcy implies a situation in which a firm is liquidated in legal manner as it is unable to repay its obligations to the creditors out of the assets it held.

Bankruptcy is an important aspect of the capitalist system.

This enable the sick firms or failed firms to exit the market thereby leading to the allocation of resources to other successful firms.

In a way, it leads to the elimination of drainage of resources in inefficient uses or manner.

Thus,

Bankruptcy is one of the major advantages of a capitalist system compared to a socialist system because it provides a mechanism for failed firm to be "recycled" and replaced by more successful ones.

Hence, the correct answer is the option (C)

Question 2

Once an equilibrium is attained in the market, it does not change unless there is change in the market forces either through government intervention or due to the change in the market environment.

Thus,

Once a market equilibrium price has been determined, the price will remain the same unless market demand changes or market supply changes due to changing market forces.

Hence, the correct answer is the option (A).

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