There Is an OPEC Cartel That Reduces the Production of World

question 14

Multiple Choice

There is an OPEC cartel that reduces the production of world oil by several million barrels a day.Which of the following correctly captures the effect of this change on the market for gasoline?

• A)Both equilibrium quantity and price will increase.
• B)Both equilibrium quantity and price will decrease.
• C)Equilibrium quantity will increase,but equilibrium price will decrease.
• D)Equilibrium quantity will decrease,but equilibrium price will increase.

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Definitions:

Underpricing

Occurs when the initial offering price of a stock is set below its market value, often leading to a price surge once it begins trading publicly.

Direct Issuance Costs

Expenses directly associated with the issuance of new securities, including legal, accounting, and underwriting fees.

Secondary Equity Offering

A financial transaction where a company offers additional shares for sale to the public after an initial public offering.

IPO Underpricing

The phenomenon where newly issued stock is priced below its market value on the initial public offering date, often leading to a first-day stock price surge.