If an Industry That Experiences External Economies Is in a Long-Run

question 85

Multiple Choice

If an industry that experiences external economies is in a long-run equilibrium, then an increase in market demand causes

• A)a decrease in price in the short run, with the price returning to its former level in the long run.
• B)an increase in price in the short run, with the price returning to its former level in the long run.
• C)an increase in price in the short run, but the price falls below its former level in the long run.
• D)an increase in price in the short run, with the price rising above its former level in the long run.
• E)nothing to change in the market.

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Definitions:

Put-Call Parity

A principle in options pricing that defines the relationship between the price of European put and call options with the same strike price and expiration.

Implied Standard Deviation

An estimate of future volatility derived from the market price of an option and other known variables using option-pricing models.

Intrinsic Value

The actual, fundamental worth of an asset, based on underlying perceptions of its true value including all aspects of the business, in terms of both tangible and intangible factors.

Call

A financial term referring to an option contract that gives the holder the right, but not the obligation, to buy a specific amount of a security at a specific price within a specific time period.