If the Price of a Cup of Dunkin' Donuts Coffee

question 146

Multiple Choice

If the price of a cup of Dunkin' Donuts coffee increases while the price of a Starbucks latte is unchanged,we expect the number of lattes purchased at Starbucks to:

• A) increase as some people switch from Dunkin' Donuts coffee to Starbucks lattes.
• B) decrease as some people switch from Dunkin' Donuts coffee to the Starbucks lattes.
• C) decrease as some people have less money to spend on caffeinated beverages.
• D) decrease as some people switch from Starbucks lattes to Dunkin' Donuts coffee.

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Definitions:

Information Content Effect

The impact of news announcements on stock prices, reflecting changes in investor perceptions.

Efficient Markets Hypothesis

The theory that financial markets are "efficient" in reflecting information about the prices of securities, meaning that existing share prices always incorporate and reflect all relevant information.

Residual Dividend Approach

A policy for setting dividends based on a firm's residual or leftover earnings after financing planned capital expenditures.