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CMA Foundation · Fundamentals of Business Economics and Management · Means of Production

Which of the following is an example of the entrepreneur's risk-bearing function that is generally regarded as UNINSURABLE and therefore truly borne by the entrepreneur?

An unforeseen fall in market demand is the uninsurable uncertainty the entrepreneur bears. Fire, transit accidents and theft have measurable probabilities and can be covered by insurance, but changes in demand, prices or tastes cannot be calculated, so the loss falls on the entrepreneur.

  1. ALoss of stock due to a fire in the godown
  2. BLoss of goods in transit by a covered accident
  3. CTheft of cash from the premises under a policy
  4. DLoss arising from an unforeseen fall in market demand for the productCorrect

Explanation

Fire, transit accidents and theft are insurable risks with measurable probability, so insurers cover them. A fall in market demand is an uncertainty that cannot be calculated or insured, so the entrepreneur bears it alone. This uninsurable uncertainty is what justifies profit.

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