How could return-chasing explain why many of Enron's employees lost most of their retirement savings when Enron went bankrupt?
What will be an ideal response?
Return-chasing occurs when people invest in assets that have realized a high rate of return in the past. Return-chasing explains why many of Enron's employees chose to forgo the benefits of diversification and invested the overwhelming majority of their retirement savings in Enron stock. Enron stock had gone up by a factor of 10 in the decade before Enron went bankrupt—that's a 1,000 percentreturn. This led Enron employees to mistakenly believe that Enron stock was a great investment for the future. Consequently, employees allocated more and more of their contributions to employer stock, under the assumption that Enron stock prices would continue to increase in the future.
A-head: EVIDENCE-BASED ECONOMICS: DO INVESTORS CHASE HISTORICAL RETURNS?
Concept: Return chasing
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Explain how technological change can cause changes in wage inequality
What will be an ideal response?
In order to engage in price discrimination, a monopolist has to be able to determine that there are different groups of consumers that have different ________ for the product.
A. income elasticities of demand B. price elasticities of demand C. cross elasticities of demand D. All of these are correct.