The Relationship Between the Value and Price of a Stock

question 34

Multiple Choice

The relationship between the value and price of a stock suggests that:

• A) the equilibrium price of a stock strikes a balance between those who think the stock is worth more and those who think it's worth less at the current price.
• B) it is the market's best guess regarding the expected value of the company's future profits.
• C) stocks are overvalued.
• D) both A and B are true.

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Definitions:

Utility Maximization

The economic principle that consumers choose to allocate their resources in a way that maximizes their satisfaction or utility.

Economic Agents

Individuals, households, firms, and governments that make decisions about the allocation of resources and interact in markets.

Clear Preferences

The state of having distinct and definite likes or choices, which can be consistently ranked or ordered by an individual or a group.

Basic Economic Theory

Fundamental principles of economics that explore how resources are allocated, goods and services are distributed, and wealth is created and transferred.