Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the O a. demand for existing shares of the stock and the price will both fall. O b. supply of existing shares of the stock and the price will both rise. Oc. supply of existing shares of the stock and the price will both fall. O d. demand for existing shares of the stock and the price will both rise.

Question

Business

Phoenix Clark

31 January, 23:22

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the O a. demand for existing shares of the stock and the price will both fall. O b. supply of existing shares of the stock and the price will both rise. Oc. supply of existing shares of the stock and the price will both fall. O d. demand for existing shares of the stock and the price will both rise.

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Darian Malone · Answer 1

a. demand for existing shares of the stock and the price will both fall.

Explanation:

The stock price is formed by the interaction of supply and demand of companies's shares and when a news like this is released is expected that the future cashflows of that company will drop. Being share buyers rational actors, the demand for the company's shares will drop, therefore the price of the company will drop as well.