Scenario 18-8 Suppose the Following Events Occur in the Market for University

question 21

Multiple Choice

Scenario 18-8
Suppose the following events occur in the market for university economics professors.
Event 1: A recession in the U.S. economy lowers the opportunity cost of going to graduate school in economics to become a university economics professor.
Event 2: A decreasing number of students in U.S. primary and secondary schools decreases the number of students entering college, decreasing the output price of university economics professors' services.
-Refer to Scenario 18-8. As a result of these two events, holding all else constant, the equilibrium wages of university economics professors will

• A)increase.
• B)decrease.
• C)not change.
• D)It is not possible to determine what will happen to the equilibrium wage.

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Definitions:

Variances of Returns

A statistical measure of the dispersion of returns for a given security or market index, often used to quantify risk.

Mean-Variance Efficient Portfolio

A portfolio constructed to have the highest possible return for a given level of risk, or equivalently, the lowest risk for a given level of expected return, according to Harry Markowitz's theory.

Firm-Specific Variances

Variability in a firm's stock price or returns that is attributable to factors unique to that firm, as opposed to general market factors.

Macroeconomic Factor

A wide-scale economic condition or variable that influences a broad economy and consequently affects individual businesses and financial markets.