A cinema offers customers the choice of paying now for an annual membership or paying separately for each visit. Membership fees are held by the cinema's ba...

Assessment: Economics 9214 | Paper 2 Mock 01 | Written Paper 2 Subject: Economics - 9214

Question 1 Report

A cinema offers customers the choice of paying now for an annual membership or paying separately for each visit. Membership fees are held by the cinema's bank until they are needed for wages and rent.

(a) State what is meant by liquidity. [1]
(b) Use the information to explain why the cinema may value a liquid bank deposit. [2]

Answer Details

(a) Liquidity is the ease with which an asset can be converted into cash or used for payments. [1]

(b) The cinema values a liquid bank deposit because it can access the money quickly. [1] It can then pay wages, rent, or other bills when they become due. [1]

Liquidity is about speed and ease of access, not necessarily about earning the highest return.

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