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Author Question: Refer to Figure 4-5. What is the area that represents the portion of producer surplus transferred to ... (Read 67 times)

joesmith1212

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on: Jun 29, 2018
Refer to Figure 4-5. What is the area that represents the portion of producer surplus transferred to consumers as a result of the rent ceiling?
 
  A) D + E B) D C) D + F D) F

Question 2

There is a practice in the stock market known as short selling whereby an individual will borrow stock from someone, turn around and sell it and then buy it back when it's price has fallen in order to return the stock back to the lender.
 
  What expectation does this short seller have about the price of this company's stock? How can he expect to make money at this practice? What could go wrong that might cost him money?


Ptupou85

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Reply #1 on: Jun 29, 2018
Answer to Question 1

B

Answer to Question 2

The short seller is expecting that the price of the stock will fall. By borrowing the stock and then selling it immediately he is anticipating that the price of the stock will fall. If it falls after he sells it and before he needs to return the stock to the lender he makes money from the transaction by pocketing the difference. If however, he is wrong and the price of the company's stock rises after he sells it he suffer losses by the amount by which the stock's price has risen times the number of shares he borrowed.


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