If the Price Per Bushel of Apples Increased from $7

question 314

Multiple Choice

If the price per bushel of apples increased from $7.00 to $8.00 because of a poor harvest, the

• A) demand for apples decreases.
• B) quantity of apples demanded decreases.
• C) quantity of apples supplied decreases.
• D) Both answers A and B are correct.

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Definitions:

SML Approach

Security Market Line approach; a graphical representation of the expected return of investments as a function of their systematic, non-diversifiable risk.

Cost of Capital

The rate of return that a company must earn on its investments to maintain its market value and satisfy its shareholders or debtholders.

Future Inflation

Anticipated increase in the price level of goods and services in the future, affecting purchasing power.

Market Risk Premium

The additional return an investor expects from holding a risky market portfolio instead of risk-free assets.