Definition: You are given a background paragraph that describes one or more causal or physical relationships, such as a relationship in economics, scientific law, or nature. You need to come up with a fictional story that makes use of the concepts or the relationship described in the provided paragraph. Make sure that your story does not repeat the relation in the given paragraph (e.g., by avoiding verbatim copies of the given paragraph). Start by reading the background paragraph, and determine what relationship(s) are in the paragraph. Write a story that involves the relationship(s) that you determined are in the background paragraph. Try to use your own words as much as possible and not repeat the background paragraph. Feel free to make up places and events as long as they tie back to the background paragraph in a way that you can ask a question about.

Positive Example 1 -
Input: Background Paragraph: A rise in price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline increases, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the law of demand. The law of demand assumes that all other variables that affect demand (which we explain in the next module) are held constant.
Output: The AAA auto club does a weekly report on the prices of gas and diesel in various cities. Historically, the prices have be fairly stagnant, but this week their report garnered widespread attention as the prices of gas and diesel plunged from last week in Seattle by $0.40 each. However, just across the border in Vancouver, the cost of gas went up dramatically by $0.50.

Positive Example 2 -
Input: Background Paragraph: The lesson is not that society is likely to make an extreme choice like devoting no resources to education at point A or no resources to health at point F. Instead, the lesson is that the gains from committing additional marginal resources to education depend on how much is already being spent. If on the one hand, very few resources are currently committed to education, then an increase in resources used can bring relatively large gains. On the other hand, if a large number of resources are already committed to education, then committing additional resources will bring relatively smaller gains.
Output: The state is deciding where to spend the rest of their budget for education. In an analysis of how districts in the state are spending their annual budgets, auditors found that in district A, most of the money was already being spent on schools. However, in district B, the money was not spent on school, but mostly on transportation.

Negative Example 1 -
Input: Background Paragraph: A rise in price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline increases, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the law of demand. The law of demand assumes that all other variables that affect demand (which we explain in the next module) are held constant.
Output: A rise in price of a good or service almost always decreases the quantity demanded of that good or service.

Now complete the following example -
Input: Background Paragraph: The trade-off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. The classical version of the hypothesis goes back to Kraus and Litzenberger[1] who considered a balance between the dead-weight costs of bankruptcy and the tax saving benefits of debt. Often agency costs are also included in the balance. This theory is often set up as a competitor theory to the pecking order theory of capital structure. A review of the literature is provided by Frank and Goyal.[2]

An important purpose of the theory is to explain the fact that corporations usually are financed partly with debt and partly with equity. It states that there is an advantage to financing with debt, the tax benefits of debt and there is a cost of financing with debt, the costs of financial distress including bankruptcy costs of debt and non-bankruptcy costs (e.g. staff leaving, suppliers demanding disadvantageous payment terms, bondholder/stockholder infighting, etc.). The marginal benefit of further increases in debt declines as debt increases, while the marginal cost increases, so that a firm that is optimizing its overall value will focus on this trade-off when choosing how much debt and equity to use for financing.
Output: 



Stories:
Bob is a financial analyst. He used to work for company A. Bob noticed that company A is mostly financed by debt. Recently, he changed job and now working as a financial analyst for another company, company B. Company B has completely different culture than company A. Company B is mostly financed by equity.

Company X stopped taking on more debt, and decided to file for bankruptcy, while company Y, kept benefiting from the tax benefits of debt, having a lower debt level.