Consider the market for ABC Company's stock. What should happen to the stock for this company if there is a rumor that the company is set to merge with another very profitable company?
A) The demand for the stock would shift to the left.
B) The demand for the stock would shift to the right.
C) The supply of the stock would shift to the left.
D) The supply of the stock would shift to the right.

Question

Quizplus · Accepted Answer

The rumor of a merger with a profitable company would create a positive expectation about the future performance of ABC Company, which would increase the demand for its stock. As more investors seek to buy shares of ABC Company, the demand curve would shift to the right, resulting in a higher equilibrium price and quantity of the stock traded. The supply of the stock would not be affected by the rumor, as it depends on the company's decision to issue new shares or not, which is unlikely to be influenced by a mere rumor.

Consider the Market for ABC Company's Stock