Suppose That Goods a and B Are Close Substitutes

question 57

Multiple Choice

Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an

• A) increase in the demand for A and an increase in the quantity of B demanded.
• B) increase in the demand for A and a decrease in the quantity of B demanded.
• C) increase in the quantity of A demanded and a decrease in the demand for B.
• D) increase in the demand for good A as well as for good B.

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Definitions:

Underpricing

Occurs when the initial offering price of a stock is set below its market value, often leading to a price surge once it begins trading publicly.

Direct Issuance Costs

Expenses directly associated with the issuance of new securities, including legal, accounting, and underwriting fees.

Secondary Equity Offering

A financial transaction where a company offers additional shares for sale to the public after an initial public offering.

IPO Underpricing

The phenomenon where newly issued stock is priced below its market value on the initial public offering date, often leading to a first-day stock price surge.