Refer to the Information Provided in Figure 4

question 13

Multiple Choice

Refer to the information provided in Figure 4.2 below to answer the question(s) that follow. Figure 4.2
-Refer to Figure 4.2. The market is initially in equilibrium at Point A and supply shifts from S₁ to S₂. Which of the following statements is true?

• A) Price will still serve as a rationing device causing quantity supplied to rise from 8 to 11 soft pretzels.
• B) There is no need for price to serve as a rationing device in this case because the new equilibrium quantity is higher than the original equilibrium quantity.
• C) Price will still serve as a rationing device causing quantity demanded to fall from 11 to 8 soft pretzels.
• D) The market cannot move to a new equilibrium until there is also a change in supply.

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Definitions:

Control

The power to influence or direct people's behavior or the course of events.

Warrants

Financial instruments allowing the holder to choose to purchase or sell an asset at a predetermined price prior to a specified deadline, without being required to do so.

Call Options

Financial derivatives that give the holder the right, but not the obligation, to buy an asset at a specified price within a specific time frame.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuing company's shares at certain times during their life, usually at the discretion of the bondholder.