State three reasons why profits are important in a market economy - Leaving Cert Economics - Question 2 - 2006
Question 2
State three reasons why profits are important in a market economy.
(i)
(ii)
(iii)
(16 marks)
Worked Solution & Example Answer:State three reasons why profits are important in a market economy - Leaving Cert Economics - Question 2 - 2006
Step 1
Encourages risk taking
96%
114 rated
Only available for registered users.
Sign up now to view full answer, or log in if you already have an account!
Answer
Profits serve as a motivation for entrepreneurs to undertake risks. In a market economy, potential profits can drive individuals to invest in new ventures, knowing that successful businesses can yield significant financial rewards.
Step 2
Indicates the best use of resources / consumer demand
99%
104 rated
Only available for registered users.
Sign up now to view full answer, or log in if you already have an account!
Answer
Profits indicate which goods and services are in high demand, therefore guiding businesses in allocating their resources efficiently. When certain products yield higher profits, it shows that consumers are willing to pay for them, prompting companies to meet this demand.
Step 3
Provides funds for expansion
96%
101 rated
Only available for registered users.
Sign up now to view full answer, or log in if you already have an account!
Answer
Profit enables businesses to reinvest in themselves, facilitating expansion and diversification. Companies can utilize profits to broaden their operations, develop new products, or enter new markets, thus fostering economic growth.
Join the Leaving Cert students using SimpleStudy...
