IGCSE Economics Paper-2: Specimen Questions with Answers 7 - 8 of 100

Passage

In an economy there are many large firms. But small firms remain small.

Question 7 (2 of 5 Based on Passage)

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Essay▾

Explain two reasons for the change in production from labor-intensive to capital-intensive.

Explanation

The reason for change in production from labor intensive to capital intensive is as follows:

  • A firm wants to benefit itself from the new and changed technology which lowers the cost of production of goods.
  • The labor available in the market does not possess the necessary skill require for the process of production.

  • In the market there is not enough supply of labor.

  • Too much chaos and disruption has been caused by the labor union strike and lockout.

  • Due to the changing price level in the economy the cost of labor in the market has also risen which leads to shift in production technique from labor intensive to capital intensive.

Question 8 (3 of 5 Based on Passage)

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Essay▾

What should a firm do when it runs out of money?

Explanation

Most of the firms face the risk of running out of cash to run the business and when the cash runs out it is difficult for the company to function leading to its failure.

When a firm runs out of cash it should:

  • A firm should cut down its expenses to save some working capital. For example- rent can be postponed for some amount of time to reduce the monthly or yearly payment.
  • An entrepreneur while making a purchase of raw materials can negotiate the price with the vendors to save some money or can buy raw materials on a credit basis to save money for daily expenses.

  • A cut down in staff can be done when a business is running out of cash as it would be able to save a lot of money on a monthly basis and the losses can be overcome easily

  • A firm can look for some short-term loans from the bank to meet its financial problem.

  • Invoices factoring is also an option which means to sell the invoices to a third part for some fee which gives immediate access to cash.

  • A firm can sell its nonessential assets in a situation of a crisis.

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