If the Securities Markets Are Efficient, the Market's Reaction to New

question 6

Multiple Choice

If the securities markets are efficient, the market's reaction to new information about a firm's value (such as an earnings announcement) should be:

• A)gradual, as investors rationally deliberate the effect of the information on the stock's value.
• B)immediate and unbiased.
• C)slow or fast, depending on the amount of 'surprise' contained in the new information.
• D)negligible (the information would have already been impounded into the firm's stock price).

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Definitions:

Ceteris Paribus

a Latin phrase meaning "all other things being equal," used in economic models to isolate the effect of one variable.

Economies of Scale

The financial advantages gained by companies due to their operational scale, where there's a general decline in the cost per unit of output with the growth in scale.

Total Demand

The entire quantity of a particular good or service that all consumers in a market want to purchase at various price levels during a specified time period.

Marginal Revenue Curve

A graphical representation showing how marginal revenue varies as the quantity of the product sold changes.