Assume the Market Depicted in the Graph Is in Equilibrium

question 140

Multiple Choice

Assume the market depicted in the graph is in equilibrium. If its price is subsequently set at $12, deadweight loss will consist of area(s) :

• A)D + E.
• B)C + G.
• C)L.
• D)None of these are correct.

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Definitions:

ESOs

Employee Stock Options; a form of equity compensation granted by companies to their employees and executives, allowing them to purchase company shares at a set price for a certain period.

Cash Wages

Payments made to employees in the form of physical currency or through direct deposits to their bank accounts as compensation for their labor.

Convertible Bonds

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

Implicit Call Option

An option embedded in a financial security that allows the issuer to repurchase it at a predetermined price before maturity, not explicitly stated within the contract.