A Decrease in Supply Will Cause the Smallest Increase in Price

question 33

Multiple Choice

A decrease in supply will cause the smallest increase in price when

• A)both supply and demand are inelastic.
• B)demand is elastic and supply is inelastic.
• C)both supply and demand are elastic.
• D)demand is inelastic and supply is elastic.

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Definitions:

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy a stock or other underlying asset at a predetermined price within a specified time period.

Put Option

A financial contract allowing the holder to sell a specific amount of an underlying asset at a predetermined price within a specified time frame.

Hedge Ratio

A ratio used to calculate the amount of derivatives needed to hedge a position or portfolio, often used to minimize risk exposure.

Delta

A measure in financial markets that compares the change in the price of a derivative to the change in the price of its underlying asset.