The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

-During a stock market bubble, the price/earnings [P/E] ratio:

Question

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2
 
-During a stock market bubble, the price/earnings [P/E] ratio:

Quizplus · Accepted Answer

During a stock market bubble, the demand for shares increases, which in turn leads to an increase in the price of shares. This increase in price may not be accompanied by an equivalent increase in the earnings of the company, leading to a high P/E ratio. Thus, the P/E ratio hits high levels during a stock market bubble.

The Figure Given Below Shows the Demand [D and D']