James Has Just Purchased a Stock for $50 a Share

question 92

Multiple Choice

James has just purchased a stock for $50 a share, and in the first two days it rises to $60 a share. James decides that this 20% gain in 48 hours is a nice little windfall, and sells the stocks at that price. The fact that it next goes up to $80 a share in the following month leaves James wondering why he sold. This tendency to sell a stock too quickly after its value has increased is called the ____ effect.

• A) endowment
• B) disposition
• C) Escalation
• D) sunk cost

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Definitions:

Rationing Mechanism

A system used to allocate scarce goods and services using criteria other than price.

Surplus

An excess of supply over demand, resulting in an accumulation of unsold products or unused resources.

Equilibrium Price

The cost at which the amount of a product or service that consumers want to buy matches the amount that producers are willing to sell, resulting in a balanced market situation.

Quantity Supplied

The total amount of a good or service that producers are willing and able to sell at a given price over a specific period.