The Theory of Efficient Markets

question 108

Multiple Choice

The theory of efficient markets:

• A)Rules out high returns due to chance.
• B)Says insider information makes markets less efficient.
• C)Allows for higher than average returns if the investor takes higher than average risk.
• D)Assumes people have equal luck.

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Definitions:

Herfindahl Index

A measure of market concentration, calculating the sum of the squares of market shares of each firm within an industry.

Short-Run Equilibrium

A state in which market supply equals demand, determining the price and quantity sold, specifically within a short timeframe.

Profit-Maximizing

This refers to the process businesses use to determine the output level at which profits are at their highest.

Marginal Revenue Curve

A graph that displays how additional revenue is affected by the sale of one more unit of a product or service.