If the Price Elasticity of Supply Is Equal to Infinity

question 61

Multiple Choice

If the price elasticity of supply is equal to infinity and the price was to fall, the quantity supplied would

• A) decrease slightly.
• B) fall to zero.
• C) not change.
• D) increase.

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Definitions:

Clientele Effect

A theory suggesting that the stock price movements are influenced by the preferences of a company's current shareholder base.

Payout Ratios

The proportion of earnings paid out to shareholders in dividends, indicating how much profit is distributed versus retained.

Investors

Persons or organizations that invest funds anticipating financial profits in return.

Expectations Theory

With respect to dividends: a dividend that’s lower than expected will be taken as a negative by investors even if it is larger than previous dividends. A variation on the signaling effect of dividends. With respect to interest rates: A theory explaining the shape of the yield curve. The curve slopes up or down depending on whether expectations about future interest and inflation rates are increasing or decreasing.