Jack, a Music Major, Is Perusing Jill's Notes for Her

question 212

Essay

Jack, a music major, is perusing Jill's notes for her economics class, where she has written that "total revenues will rise with price rises only if demand is elastic." Jack tells Jill this is nonsense because firms can always increase their revenues by raising price. How should Jill respond?

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Definitions:

Market Risk Premium

The excess return that investors require for choosing to purchase stocks over risk-free securities.

SML Slope

The slope of the Security Market Line, which represents the risk-return trade-off at any given time, illustrating the expected return of a security per unit of risk.

Capital Asset Pricing Model

A model used to determine the theoretical expected return on an investment, considering risk-free return, the investment's volatility, and the expected return of the market.

Beta

A measure of a stock's volatility in relation to the overall market; used in the Capital Asset Pricing Model to determine risk.