Question 1

Futures markets are used for speculation and rarely for reducing risk.

Accepted Answer

A) True 
 B)False  False

Question 2

If the production of two goods uses a common input, increases in production of one good will cause:

Accepted Answer

A)  decreases in the supply and increases in the price of the other good. 
B)  decreases in the supply and price of the other good. 
C)  increases in the supply and price of the other good. 
D)  increases in the supply and decreases in the price of the other good. 
A)  decreases in the supply and increases in the price of the other good. 
B)  decreases in the supply and price of the other good. 
C)  increases in the supply and price of the other good. 
D)  increases in the supply and decreases in the price of the other good. A

Question 3

A barrel of oil can be used to produce both gasoline and asphalt. If the price of gasoline falls, the supply of asphalt ________ and asphalt prices ________.

Accepted Answer

A)  increases; decrease 
B)  increases; increase 
C)  decreases; decrease 
D)  decreases; increase 
A)  increases; decrease 
B)  increases; increase 
C)  decreases; decrease 
D)  decreases; increase A

Question 4

Workers in Peru collect cochineal bugs used to dye certain United States food items red. Market activities such as this one can best be described as:

Accepted Answer

A)  cooperative, voluntary, and undirected. 
B)  chaotic and primitive. 
C)  directed and uncooperative. 
D)  orderly, involuntary, and centrally directed. 
A)  cooperative, voluntary, and undirected. 
B)  chaotic and primitive. 
C)  directed and uncooperative. 
D)  orderly, involuntary, and centrally directed.

Question 5

In the early 2000s, economists and firms worked with a research arm of the Pentagon (specifically, DARPA) to develop prediction markets for national security purposes. One of the potential shares for trading would have been the event of a terrorist attack (the entire project was later canceled in 2003 because of publicity issues). What would intelligence agencies have looked at to determine the likelihood of a terrorist attack at any particular time?

Accepted Answer

A)  the volume of trading 
B)  the price of the share 
C)  the level of fluctuation of the volume of trading 
D)  the level of fluctuation of the price 
A)  the volume of trading 
B)  the price of the share 
C)  the level of fluctuation of the volume of trading 
D)  the level of fluctuation of the price

Question 6

If Sarah worked for a Hollywood prediction market that forecasts opening-weekend film revenues, what factors should she consider in her forecast?
I. the number of screens at movie theaters in the country
II. the popularity of the cast of the movie
III. the movies' special effects budget, and its director and producer

Accepted Answer

A)  I only 
B)  I and III only 
C)  II and III only 
D)  I, II, and III 
A)  I only 
B)  I and III only 
C)  II and III only 
D)  I, II, and III

Question 7

Use the following to answer questions:
Figure: Supply and Demand  
-(Figure: Supply and Demand) At the equilibrium price in the figure, satisfied demanders are represented by the section of the demand curve between:

Accepted Answer

A)  $5 and $10. 
B)  $0 and $5. 
C)  $3 and $7. 
D)  $0 and $10. 
A)  $5 and $10. 
B)  $0 and $5. 
C)  $3 and $7. 
D)  $0 and $10.

Question 8

Use the following to answer questions
Table: The HP Stock Exchange
 
-(Table: The HP Stock Exchange) The HP Stock Exchange lets members of HP's sales team buy and sell shares that pay off when sales fall within a certain range. A typical security would pay out $1, if and only if future sales fell within the specific range of that share. Accordingly, the trading prices given in the table suggest that the probability of selling:

Accepted Answer

A)  less than 5,000 is 10%. 
B)  more than 15,000 is 40%. 
C)  between 10,000 and 15,000 units is at least 20%. 
D)  between 15,000 and 25,000 units is 60%. 
A)  less than 5,000 is 10%. 
B)  more than 15,000 is 40%. 
C)  between 10,000 and 15,000 units is at least 20%. 
D)  between 15,000 and 25,000 units is 60%.

Question 9

The great economic problem is to increase our limited resources to satisfy as many of our infinite wants as possible.

Accepted Answer

A) True 
 B)False

Question 10

Use the following to answer question 154:
Figure: Speculation  
-(Figure: Speculation) Today, speculators anticipating trouble in the Middle East will ______ the current supply of oil, causing the price of oil to _______.

Accepted Answer

A)  decrease; rise from B to A 
B)  decrease; fall from A to B 
C)  increase; rise from B to A 
D)  increase; fall from A to B 
A)  decrease; rise from B to A 
B)  decrease; fall from A to B 
C)  increase; rise from B to A 
D)  increase; fall from A to B

Question 11

Futures:

Accepted Answer

A)  require people to be present in Cushing, Oklahoma, on settlement day. 
B)  are standardized contracts to buy or sell specified quantities at a set price at a specific time in the future. 
C)  are not tradable. 
D)  specify a commodity price and a quantity to be determined later. 
A)  require people to be present in Cushing, Oklahoma, on settlement day. 
B)  are standardized contracts to buy or sell specified quantities at a set price at a specific time in the future. 
C)  are not tradable. 
D)  specify a commodity price and a quantity to be determined later.

Question 12

Economist Robin Hanson has proposed a partial replacement for democracy called Futarchy. Instead of voting on what we want to do and how we should do it, under Futarchy, we would vote on what we want to do, but let prediction markets tell us the policies that would best accomplish our goals. Whatever the prediction markets say would be enacted into law. Who has better incentives for selecting policies that would accomplish our goals: individual voters under democracy or individual traders in Futarchy?

Accepted Answer

A)  voters under democracy 
B)  traders under Futarchy 
C)  They both have the same incentives. 
D)  Neither of them has any incentive. 
A)  voters under democracy 
B)  traders under Futarchy 
C)  They both have the same incentives. 
D)  Neither of them has any incentive.

Question 13

In a demand-and-supply diagram, the market price represents the value of the:

Accepted Answer

A)  first satisfied want. 
B)  last unsatisfied want. 
C)  good in its next-lowest use. 
D)  good in its next-highest use. 
A)  first satisfied want. 
B)  last unsatisfied want. 
C)  good in its next-lowest use. 
D)  good in its next-highest use.

Question 14

Ethanol is the active ingredient in alcoholic beverages, but it's also a good fuel that can be made from a variety of crops like corn or sugar cane. Show how each of the following events would affect the market demand and/or supply of ethanol, as well as the resulting effect on the price of ethanol.
a. The price of oil skyrockets with sudden eruption of war in the Middle East.
b. More parents are concerned about cavities in their children's teeth, resulting from eating candy bars.
c. Alcoholic beverage consumption is declining over time due to increased health warnings.

Accepted Answer

a. As the price of oil increases, demand

Question 15

Futures markets in coal can signal which of the following kinds of information?
I. Futures markets in coal can signal when the coal seams may run out
II. Futures markets in coal can signal changes in the industrial demand for coal
III. Futures markets in coal can signal the effect of the projected arrival of coal substitutes

Accepted Answer

A)  I only 
B)  II only 
C)  I and III 
D)  I, II, and III 
A)  I only 
B)  II only 
C)  I and III 
D)  I, II, and III

Question 16

Which statements are TRUE?
I. Free markets work to best utilize limited resources to satisfy limited wants.
II. Prices signal the value of resources to consumers and suppliers.
III. Prices reflect information.

Accepted Answer

A)  I and II only 
B)  III only 
C)  II and III only 
D)  I, II, and III 
A)  I and II only 
B)  III only 
C)  II and III only 
D)  I, II, and III

Question 17

A decrease in the demand for a good sold in Market A:

Accepted Answer

A)  will affect only Market A. 
B)  might affect other markets, even those halfway across the world. 
C)  will not affect Market A, but it will affect nearby markets. 
D)  might affect distant markets, but it will not affect Market A. 
A)  will affect only Market A. 
B)  might affect other markets, even those halfway across the world. 
C)  will not affect Market A, but it will affect nearby markets. 
D)  might affect distant markets, but it will not affect Market A.

Question 18

A prediction market is a:

Accepted Answer

A)  perfectly functioning futures market, so that futures output can be interpreted as probabilities and used to make predictions. 
B)  perfectly functioning futures market, so that futures prices can be interpreted as probabilities and used to make predictions. 
C)  speculative market carefully designed so that output can be interpreted as probabilities and used to make predictions. 
D)  speculative market carefully designed so that prices can be interpreted as probabilities and used to make predictions. 
A)  perfectly functioning futures market, so that futures output can be interpreted as probabilities and used to make predictions. 
B)  perfectly functioning futures market, so that futures prices can be interpreted as probabilities and used to make predictions. 
C)  speculative market carefully designed so that output can be interpreted as probabilities and used to make predictions. 
D)  speculative market carefully designed so that prices can be interpreted as probabilities and used to make predictions.

Question 19

An increase in the futures price of milk is an indication that the:

Accepted Answer

A)  supply of milk will increase in the future. 
B)  price of milk is expected to rise. 
C)  opportunity cost of milk is higher today than it will be in the future. 
D)  price of milk is expected to fall, and hence speculators would prefer to buy it in the future. 
A)  supply of milk will increase in the future. 
B)  price of milk is expected to rise. 
C)  opportunity cost of milk is higher today than it will be in the future. 
D)  price of milk is expected to fall, and hence speculators would prefer to buy it in the future.

Question 20

To trade in oil futures, a trader must be present in Cushing, Oklahoma, on settlement day to receive the purchased oil.

Accepted Answer

A) True 
 B)False

Futures markets are used for speculation and rarely for reducing risk.

If the production of two goods uses a common input, increases in production of one good will cause:

A barrel of oil can be used to produce both gasoline and asphalt. If the price of gasoline falls, the supply of asphalt and asphalt prices .

Workers in Peru collect cochineal bugs used to dye certain United States food items red. Market activities such as this one can best be described as:

Use the following to answer questions: Figure: Supply and Demand -(Figure: Supply and Demand) At the equilibrium price in the figure, satisfied demanders are represented by the section of the demand curve between:

The great economic problem is to increase our limited resources to satisfy as many of our infinite wants as possible.

Use the following to answer question 154: Figure: Speculation -(Figure: Speculation) Today, speculators anticipating trouble in the Middle East will the current supply of oil, causing the price of oil to _.

Futures:

In a demand-and-supply diagram, the market price represents the value of the:

Which statements are TRUE? I. Free markets work to best utilize limited resources to satisfy limited wants. II. Prices signal the value of resources to consumers and suppliers. III. Prices reflect information.

A decrease in the demand for a good sold in Market A:

A prediction market is a:

An increase in the futures price of milk is an indication that the:

To trade in oil futures, a trader must be present in Cushing, Oklahoma, on settlement day to receive the purchased oil.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

Exam 7: The Price System

Futures markets are used for speculation and rarely for reducing risk.

If the production of two goods uses a common input, increases in production of one good will cause:

A barrel of oil can be used to produce both gasoline and asphalt. If the price of gasoline falls, the supply of asphalt ________ and asphalt prices ________.

Workers in Peru collect cochineal bugs used to dye certain United States food items red. Market activities such as this one can best be described as:

Use the following to answer questions: Figure: Supply and Demand -(Figure: Supply and Demand) At the equilibrium price in the figure, satisfied demanders are represented by the section of the demand curve between:

The great economic problem is to increase our limited resources to satisfy as many of our infinite wants as possible.

Use the following to answer question 154: Figure: Speculation -(Figure: Speculation) Today, speculators anticipating trouble in the Middle East will ______ the current supply of oil, causing the price of oil to _______.

Futures:

In a demand-and-supply diagram, the market price represents the value of the:

Which statements are TRUE? I. Free markets work to best utilize limited resources to satisfy limited wants. II. Prices signal the value of resources to consumers and suppliers. III. Prices reflect information.

A decrease in the demand for a good sold in Market A:

A prediction market is a:

An increase in the futures price of milk is an indication that the:

To trade in oil futures, a trader must be present in Cushing, Oklahoma, on settlement day to receive the purchased oil.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

A barrel of oil can be used to produce both gasoline and asphalt. If the price of gasoline falls, the supply of asphalt and asphalt prices .

Use the following to answer question 154: Figure: Speculation -(Figure: Speculation) Today, speculators anticipating trouble in the Middle East will the current supply of oil, causing the price of oil to _.