Figure 3.8 -Refer to Figure 3.8.The Graph in This Figure Illustrates an Figure

question 120

Multiple Choice

Figure 3.8
-Refer to Figure 3.8.The graph in this figure illustrates an initial competitive equilibrium in the market for sugar at the intersection of D₁ and S₂ (point B) . If there is a decrease in the price of fertilizer used on sugar cane and there is a decrease in tastes for sugar-sweetened soft drinks, how will the equilibrium point change?

• A)The equilibrium point will move from B to A.
• B)The equilibrium point will move from B to C.
• C)There will be no change in the equilibrium point.
• D)The equilibrium point will move from B to E.

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Definitions:

Economic Exposure

Long-term financial risk arising from permanent changes in prices or other economic fundamentals.

Cross-Hedging

Hedging an asset with contracts written on a closely related, but not identical, asset.

Basis Risk

Risk that futures prices will not move directly with the cash price hedged.

May Coffee Futures

Contracts for the future delivery of coffee that are due in May, used for hedging and speculative purposes in the commodities market.