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Difficulty: HardConcept and Classification of Markets

A Lagos-based technology firm engages in three distinct business transactions: hiring software engineers for product development, buying server hardware to expand its operational infrastructure, and issuing 90-day commercial paper to cover short-term working capital needs. Based on economic criteria for classifying markets, in which market types do these three transactions occur, respectively?

  1. Factor market, capital goods market, and money marketAnswer
  2. B
    Factor market, capital goods market, and capital market
  3. C
    Consumer goods market, capital goods market, and money market
  4. D
    Capital goods market, factor market, and capital market

Answer

Factor market, capital goods market, and money market
The correct answer accurately maps each economic activity to its corresponding market classification: software engineers represent productive labor hired in the factor market; server hardware constitutes durable physical equipment bought in the capital goods market; and 90-day commercial paper is a short-term debt instrument traded in the money market.

Step-by-Step Solution

1
Analyze the first transaction (hiring software engineers).
Labor is a primary factor of production used by firms to create output.
Transactions involving the purchase or hire of productive inputs (land, labor, capital, entrepreneurship) take place in the factor market.
2
Analyze the second transaction (purchasing server hardware).
Server hardware is a physical asset used by a firm to produce other goods or services.
Goods purchased by businesses for use in further production rather than direct personal consumption belong to the capital (producer) goods market.
3
Analyze the third transaction (issuing 90-day commercial paper).
90-day commercial paper is a short-term debt security with maturity less than one year.
Financial markets dealing in short-term debt instruments and liquidity requirements are classified as money markets, unlike capital markets which deal in long-term instruments (over one year).

Key Concept

Classification of Markets by Commodity Type and Financial Tenure
Estimated Time:1m 30s
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Topics

Concept and Classification of Markets

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