Final answer:
The Green Shoe option is exercised when an IPO is underpriced and oversubscribed. A price floor doesn't shift demand or supply, as it's set only to maintain a minimum price level for a good or service.
Step-by-step explanation:
The Green Shoe option is a term used in the context of an Initial Public Offering (IPO). It refers to an option where the underwriter can sell more shares than were originally planned if there is higher demand than expected. Regarding the student's question, the Green Shoe option is most apt to be exercised when an IPO is underpriced and oversubscribed. This situation occurs when the demand for the shares is higher than the supply, indicating strong interest in the stock, leading to the stock being oversubscribed. In such scenarios, the underwriter can choose to exercise the Green Shoe option to meet the additional demand and stabilize the share price post-IPO.
As for the second part of the question, a price floor is a government or group-imposed price control that sets the minimum price that can be charged for a product or service. The correct answer to this part is that a price floor will usually shift neither demand nor supply. This is because a price floor is set above the equilibrium price to ensure that the price for a good or service does not fall below this level, but it does not directly cause the demand or supply curves to shift.