Question 1

A spot market allows for the exchange of commodities in the ______ at prices that are settled upon in the ______.

Accepted Answer

A)  past; present 
B)  present; present 
C)  future; present 
D)  present; future 
A)  past; present 
B)  present; present 
C)  future; present 
D)  present; future

Question 2

How can selling a futures contract mitigate agricultural risk for farmers?

Accepted Answer

A)  Farmers can grow crops that are not subject to weather inclemency. 
B)  Farmers can pin down a price for their produce even if there is volatility in market prices. 
C)  Futures contracts allow farmers to store their grains in silos until the market prices rise. 
D)  Futures contracts allow farmers to trade in crops whose prices will fall in the future. 
A)  Farmers can grow crops that are not subject to weather inclemency. 
B)  Farmers can pin down a price for their produce even if there is volatility in market prices. 
C)  Futures contracts allow farmers to store their grains in silos until the market prices rise. 
D)  Futures contracts allow farmers to trade in crops whose prices will fall in the future.

Question 3

Speculators reduce price swings for goods, increasing society's welfare.

Accepted Answer

A) True 
 B)False

Question 4

A futures contract can make a future price certain.

Accepted Answer

A) True 
 B)False

Question 5

Use the following to answer questions:
Figure: Demand Curve  
-(Figure: Demand Curve) Refer to the figure. Which point on the graph represents an unsatisfied want?

Accepted Answer

A)  Point B 
B)  Point A and Point B 
C)  Point A 
D)  Point C 
A)  Point B 
B)  Point A and Point B 
C)  Point A 
D)  Point C

Question 6

It is difficult for a central planner to determine optimal allocations of resources because:

Accepted Answer

A)  of the simplicity of a modern economy. 
B)  of a potential lack of incentives among citizens who are asked to provide the central planner with accurate information. 
C)  of too many incentives governing the central planner. 
D)  the incentives exist to manipulate the resources to improve the allocations of resources. 
A)  of the simplicity of a modern economy. 
B)  of a potential lack of incentives among citizens who are asked to provide the central planner with accurate information. 
C)  of too many incentives governing the central planner. 
D)  the incentives exist to manipulate the resources to improve the allocations of resources.

Question 7

All relevant information about the use of a good is captured:

Accepted Answer

A)  by a central planner. 
B)  in its price. 
C)  by the Federal Trade Commission. 
D)  in its level of quality. 
A)  by a central planner. 
B)  in its price. 
C)  by the Federal Trade Commission. 
D)  in its level of quality.

Question 8

Central planning usually fails because:

Accepted Answer

A)  of the scarcity of resources. 
B)  of problems of inadequate demand and supply. 
C)  central planners rely on market forces. 
D)  of information and incentive problems. 
A)  of the scarcity of resources. 
B)  of problems of inadequate demand and supply. 
C)  central planners rely on market forces. 
D)  of information and incentive problems.

Question 9

In a competitive free market, consumers decide not only whether their use of a good is worth more than the market price, but also whether their use of a good is worth more than:

Accepted Answer

A)  all other uses of the good. 
B)  its inframarginal uses. 
C)  the good's highest-valued use. 
D)  its next highest-valued use. 
A)  all other uses of the good. 
B)  its inframarginal uses. 
C)  the good's highest-valued use. 
D)  its next highest-valued use.

Question 10

The Strike King Lure Co. ordered $100,000 worth of stainless steel to use in the production of fishing lures. The $100,000 expenditure represents the:

Accepted Answer

A)  value of the stainless steel in its lowest-valued use. 
B)  profits gained from selling fishing lures. 
C)  value of the stainless steel in its next highest-valued use. 
D)  revenues of producing fishing lures minus the costs. 
A)  value of the stainless steel in its lowest-valued use. 
B)  profits gained from selling fishing lures. 
C)  value of the stainless steel in its next highest-valued use. 
D)  revenues of producing fishing lures minus the costs.

Question 11

Rising oil prices during the 1970s shifted flower production from California to Kenya. Which of the following answers explains this shift?

Accepted Answer

A)  Markets are linked to one another. 
B)  Rising oil prices decreased greenhouse heating costs in California, making it cheaper to grow flowers in warmer climates. 
C)  The Kenyan flower industry is run by the California flower growers. 
D)  No transportation costs exist for flowers. 
A)  Markets are linked to one another. 
B)  Rising oil prices decreased greenhouse heating costs in California, making it cheaper to grow flowers in warmer climates. 
C)  The Kenyan flower industry is run by the California flower growers. 
D)  No transportation costs exist for flowers.

Question 12

Suppose resources are directed by means of a central planner who receives information on all the different uses of these resources. Why might sellers have an incentive to not provide truthful information to the central planner?

Accepted Answer

A)  Sellers want to be able to charge the minimum price for their product. 
B)  In order to continue producing their product, sellers may overstate the importance of that product. 
C)  The information system is too complex to provide correct information. 
D)  They want resources to be able to travel to the highest-value uses possible. 
A)  Sellers want to be able to charge the minimum price for their product. 
B)  In order to continue producing their product, sellers may overstate the importance of that product. 
C)  The information system is too complex to provide correct information. 
D)  They want resources to be able to travel to the highest-value uses possible.

Question 13

Is the task of effective central planning difficult?

Accepted Answer

A)  It is not difficult because allocating resources is easier than ever with the microprocessing power of twenty-first-century computers. 
B)  It is not difficult because economic models and theory have become increasingly better at handling real-world complexities. 
C)  It is difficult because central planners have no way of knowing the value of a particular resource in all of its uses. 
D)  It is difficult, but only if the central planners are dedicated public servants and not self-interested politicians. 
A)  It is not difficult because allocating resources is easier than ever with the microprocessing power of twenty-first-century computers. 
B)  It is not difficult because economic models and theory have become increasingly better at handling real-world complexities. 
C)  It is difficult because central planners have no way of knowing the value of a particular resource in all of its uses. 
D)  It is difficult, but only if the central planners are dedicated public servants and not self-interested politicians.

Question 14

Markets have the advantage over central planning as the method of resource allocation because:

Accepted Answer

A)  resources travel to their highest-value uses. 
B)  resources are allocated equally across all uses. 
C)  resources are distributed to those goods that have a larger number of substitutes. 
D)  central planners have never been shown to correctly identify high-value uses of products. 
A)  resources travel to their highest-value uses. 
B)  resources are allocated equally across all uses. 
C)  resources are distributed to those goods that have a larger number of substitutes. 
D)  central planners have never been shown to correctly identify high-value uses of products.

Question 15

If a central planner had the power to solve the great economic problem:

Accepted Answer

A)  his incentive would be to solve the problem. 
B)  his incentive would be to use that power to enrich himself, not to solve the problem. 
C)  his incentive would be to use the price system to solve the problem. 
D)  he would not be very powerful. 
A)  his incentive would be to solve the problem. 
B)  his incentive would be to use that power to enrich himself, not to solve the problem. 
C)  his incentive would be to use the price system to solve the problem. 
D)  he would not be very powerful.

Question 16

Suppose that war in the Middle East disrupts oil production, reducing the supply of oil by 20%. The central planner of a government decides to economize on oil.
a. What should a central planner do to economize on oil?
b. What information does a central planner have to collect in order to economize on oil?
c. What may cause a central planner to fail to economize on oil?

Accepted Answer

a. The central planner should shift oil

Question 17

In a "successful" market, there will be:

Accepted Answer

A)  many successful firms. 
B)  less bankruptcy filings. 
C)  many unsuccessful firms. 
D)  both many successful and many unsuccessful firms. 
A)  many successful firms. 
B)  less bankruptcy filings. 
C)  many unsuccessful firms. 
D)  both many successful and many unsuccessful firms.

Question 18

The Kenyan flower industry provides an example of:

Accepted Answer

A)  how shifts of supply and demand in one market have effects on other markets. 
B)  why most markets are independent of one another. 
C)  how prices fail to coordinate economic activity. 
D)  why it is difficult to link world markets. 
A)  how shifts of supply and demand in one market have effects on other markets. 
B)  why most markets are independent of one another. 
C)  how prices fail to coordinate economic activity. 
D)  why it is difficult to link world markets.

Question 19

The text states: "The great economic problem is to arrange our limited resources to satisfy as many of our wants as possible." How does a market achieve this goal?

Accepted Answer

A)  It chooses central planners who are experts at identifying the best uses of resources. 
B)  The forces of demand and supply use prices as a signaling device that directs resources to their highest-value uses. 
C)  It ensures that prices provide an even signal by making sure prices across all markets are equal. 
D)  It offers resource-based futures contracts. 
A)  It chooses central planners who are experts at identifying the best uses of resources. 
B)  The forces of demand and supply use prices as a signaling device that directs resources to their highest-value uses. 
C)  It ensures that prices provide an even signal by making sure prices across all markets are equal. 
D)  It offers resource-based futures contracts.

Question 20

The market is effectively able to allocate goods to their highest-valued uses because:

Accepted Answer

A)  consumers will only purchase the good if its value is greater than its price. 
B)  government intervention keeps prices consistent with their market value. 
C)  suppliers will only produce goods for which the cost of production is less than the price. 
D)  consumers have a great incentive to conserve goods for future use. 
A)  consumers will only purchase the good if its value is greater than its price. 
B)  government intervention keeps prices consistent with their market value. 
C)  suppliers will only produce goods for which the cost of production is less than the price. 
D)  consumers have a great incentive to conserve goods for future use.

Exam 7: The Price System

A spot market allows for the exchange of commodities in the ______ at prices that are settled upon in the ______.

How can selling a futures contract mitigate agricultural risk for farmers?

Speculators reduce price swings for goods, increasing society's welfare.

A futures contract can make a future price certain.

Use the following to answer questions: Figure: Demand Curve -(Figure: Demand Curve) Refer to the figure. Which point on the graph represents an unsatisfied want?

It is difficult for a central planner to determine optimal allocations of resources because:

All relevant information about the use of a good is captured:

Central planning usually fails because:

In a competitive free market, consumers decide not only whether their use of a good is worth more than the market price, but also whether their use of a good is worth more than:

The Strike King Lure Co. ordered $100,000 worth of stainless steel to use in the production of fishing lures. The $100,000 expenditure represents the:

Rising oil prices during the 1970s shifted flower production from California to Kenya. Which of the following answers explains this shift?

Suppose resources are directed by means of a central planner who receives information on all the different uses of these resources. Why might sellers have an incentive to not provide truthful information to the central planner?

Is the task of effective central planning difficult?

Markets have the advantage over central planning as the method of resource allocation because:

If a central planner had the power to solve the great economic problem:

In a "successful" market, there will be:

The Kenyan flower industry provides an example of:

The text states: "The great economic problem is to arrange our limited resources to satisfy as many of our wants as possible." How does a market achieve this goal?

The market is effectively able to allocate goods to their highest-valued uses because:

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 spot market allows for the exchange of commodities in the at prices that are settled upon in the .