Because People Can Adapt to Paying Higher Prices Over Time

question 53

True/False

Because people can adapt to paying higher prices over time, the price elasticity of demand is lower in the long run than in the short run.

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Definitions:

Asymmetric Information

Assumes managers have more complete information than investors about a firm’s prospects—can have an important effect on capital structure.

Diversified Portfolios

Investment strategies involving the mixing of various asset classes and securities to reduce risk through diversification.

Financial Distress

A scenario in which a business is unable to fulfill or struggles to pay its debts to those it owes money to.

Capital Budget

The process and plan for allocating resources for major investments or projects that a company undertakes to maintain or expand its operations.