If the Expected Future Earnings of a Company Goes Down

question 7

Multiple Choice

If the expected future earnings of a company goes down, you would expect the price of its stock to

• A) rise.
• B) fall.
• C) be unaffected.
• D) fall to zero.

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Definitions:

Substitution Effect

A shift in consumer behavior as a result of alterations in the comparative costs of products, resulting in the replacement of one product for another.

Indifference Curves

Graphical representations in economics showing different combinations of two goods that give a consumer equal satisfaction and utility, thus marking consumer preferences.

Concave

A shape or curve that is curved inward, resembling the interior of a circle or sphere, often used to describe functions or geometric objects.

Convex

A shape or curve that curves outward or bulges outward, typically used in the context of geometric figures or in economic models to describe preferences or production possibilities.