Refer to the Graph

question 348

Multiple Choice

Refer to the graph. Other things equal, a decrease in the price of a substitute resource would cause a

• A)move from a to b on D₁.
• B)shift from D₂ to D₃, assuming the output effect exceeds the substitution effect.
• C)shift from D₃ to D₂, assuming the output effect exceeds the substitution effect.
• D)move from b to a on D₁.

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Definitions:

Risk Premium

The additional return an investor requires to invest in an asset over a risk-free rate, compensating for the risk of the investment.

Yield

The income return on an investment, such as the interest or dividends received, often expressed as an annual percentage based on the investment’s cost, current market value, or face value.

CAPM Approach

The Capital Asset Pricing Model, a formula used to determine the expected return on investment (ROI) by correlating the risk and expected return.

Cost of Equity

The return that shareholders require or expect to earn on their investment in the company, considered as the company's cost of retaining and using equity capital.