Question 1

MOST economies today are

Accepted Answer

A)  centrally planned. 
B)  market driven. 
C)  regionally planned. 
D)  uncoordinated. 
A)  centrally planned. 
B)  market driven. 
C)  regionally planned. 
D)  uncoordinated.

Question 2

A market might have a small quantity traded at a high price in one year, and a larger quantity traded at a low price in another year. If one has data on the quantities traded each year in a market, one can compute the average quantity traded over time. Using appropriate demand and supply graphs, explain how speculators act as a sort of "averaging" effect on markets.

Accepted Answer

Speculators act as a sort of averaging e

Question 3

Use the following to answer questions:
Figure: Demand Curve  
-(Figure: Demand Curve) Refer to the figure. Which point on the graph represents the value of the good in its next highest valued use?

Accepted Answer

A)  Point A 
B)  Point B 
C)  Point C 
D)  the origin 
A)  Point A 
B)  Point B 
C)  Point C 
D)  the origin

Question 4

Prices are incentives for sellers.

Accepted Answer

A) True 
 B)False

Question 5

When speculators are right, they:

Accepted Answer

A)  move consumption of goods from times when they have a high value to times when they have a low value. 
B)  move consumption of goods from times when they have a low value to times when they have a high value. 
C)  often decrease economic efficiency since they raise prices in the short term. 
D)  decrease the opportunity cost of current production. 
A)  move consumption of goods from times when they have a high value to times when they have a low value. 
B)  move consumption of goods from times when they have a low value to times when they have a high value. 
C)  often decrease economic efficiency since they raise prices in the short term. 
D)  decrease the opportunity cost of current production.

Question 6

The brief United States attempt to centrally plan the oil market was in response to:

Accepted Answer

A)  oil exploration in the United States. 
B)  oil exploration in Canada. 
C)  the 1973-1974 oil crisis. 
D)  development of viable alternative energies. 
A)  oil exploration in the United States. 
B)  oil exploration in Canada. 
C)  the 1973-1974 oil crisis. 
D)  development of viable alternative energies.

Question 7

Which statement explains why prices are so important in a market economy?

Accepted Answer

A)  They convey information regarding the value of resources in alternative uses. 
B)  They directly correlate with producer profits. 
C)  They convey information regarding the value of the good to consumers. 
D)  They hold a negative correlation with the producers' opportunity cost. 
A)  They convey information regarding the value of resources in alternative uses. 
B)  They directly correlate with producer profits. 
C)  They convey information regarding the value of the good to consumers. 
D)  They hold a negative correlation with the producers' opportunity cost.

Question 8

Uni-Trax Publishers allows its sales team to buy and sell shares that pay out $1 only if the sales in the future fall within a certain range. Suppose that, currently, shares for sales between 1,000 textbooks and 2,000 textbooks are selling for 10 cents each. Shares for sales between 2,000 and 3,000 textbooks are selling for 30 cents each. Shares for sales between 3,000 and 4,000 textbooks are selling for 40 cents each. Based on this information, what is the probability of Uni-Trax Publishers selling between 2,000 and 4,000 textbooks?

Accepted Answer

A)  10% 
B)  40% 
C)  70% 
D)  30% 
A)  10% 
B)  40% 
C)  70% 
D)  30%

Question 9

When they guess correctly about price movements, speculators:

Accepted Answer

A)  move goods from periods of low-use value to periods of high-use value, making society better off. 
B)  cause a misallocation of resources by taking resources away from consumers who value them the most. 
C)  profit at the expense of society, making everyone worse off. 
D)  cause high price volatility. 
A)  move goods from periods of low-use value to periods of high-use value, making society better off. 
B)  cause a misallocation of resources by taking resources away from consumers who value them the most. 
C)  profit at the expense of society, making everyone worse off. 
D)  cause high price volatility.

Question 10

Although large parts of beef cattle become meat products, other parts become leather jackets. As the demand for beef rises, what happens in the market for leather jackets?

Accepted Answer

A)  Supply decreases and price increases. 
B)  Demand and price increase. 
C)  Supply increases and price decreases. 
D)  Demand and price decrease. 
A)  Supply decreases and price increases. 
B)  Demand and price increase. 
C)  Supply increases and price decreases. 
D)  Demand and price decrease.

Question 11

It's worthwhile to grow roses in Kenya because:

Accepted Answer

A)  people in Amsterdam don't cooperate with people in Kenya. 
B)  very few people have to be involved in the process of supplying roses grown there. 
C)  it's impossible to grow roses anywhere else. 
D)  the gains from growing roses in an ideal climate are greater than the costs of transporting roses around the world. 
A)  people in Amsterdam don't cooperate with people in Kenya. 
B)  very few people have to be involved in the process of supplying roses grown there. 
C)  it's impossible to grow roses anywhere else. 
D)  the gains from growing roses in an ideal climate are greater than the costs of transporting roses around the world.

Question 12

If the price of ice in a hurricane-devastated area suddenly skyrockets, then ice suppliers will:

Accepted Answer

A)  enjoy high profits at the expense of consumers. 
B)  limit the supply of ice in the area to sustain the skyrocketing price. 
C)  ship more ice to the area and the price will fall. 
D)  have an incentive to direct ice to its highest-valued uses. 
A)  enjoy high profits at the expense of consumers. 
B)  limit the supply of ice in the area to sustain the skyrocketing price. 
C)  ship more ice to the area and the price will fall. 
D)  have an incentive to direct ice to its highest-valued uses.

Question 13

A retail outlet sells bottled water. Which scenario would cause them to use a "buy low and sell high" strategy with bottled water?

Accepted Answer

A)  A hurricane is expected to arrive within one week. 
B)  A new producer for bottled water is expected to enter the market within the next three months. 
C)  Consumers are moving away from bottled water consumption to filtered tap water consumption. 
D)  Imports of bottled water begin to arrive in town. 
A)  A hurricane is expected to arrive within one week. 
B)  A new producer for bottled water is expected to enter the market within the next three months. 
C)  Consumers are moving away from bottled water consumption to filtered tap water consumption. 
D)  Imports of bottled water begin to arrive in town.

Question 14

In the event of an oil supply disruption, the price system provides incentives to allocate oil away from low-value uses.

Accepted Answer

A) True 
 B)False

Question 15

Which example is a reasonable analogy of the interconnectedness and coordination of markets?

Accepted Answer

A)  a large corporation 
B)  the World Wide Web 
C)  a college dorm 
D)  Nothing can approximate the market. 
A)  a large corporation 
B)  the World Wide Web 
C)  a college dorm 
D)  Nothing can approximate the market.

Question 16

How can a futures contract mitigate exchange rate risk for an exporting firm?

Accepted Answer

A)  Exporters can pin down the exact exchange rate they want to trade at and ensure a certain income stream. 
B)  Exporters can avoid international trade and enter into contracts for domestic items only. 
C)  The contract mitigates exchange rate risk by allowing exporters to avoid political risks associated with exchange rate volatility. 
D)  The contract mitigates risk by allowing exporters to trade in alternate stable currencies. 
A)  Exporters can pin down the exact exchange rate they want to trade at and ensure a certain income stream. 
B)  Exporters can avoid international trade and enter into contracts for domestic items only. 
C)  The contract mitigates exchange rate risk by allowing exporters to avoid political risks associated with exchange rate volatility. 
D)  The contract mitigates risk by allowing exporters to trade in alternate stable currencies.

Question 17

If speculators expect the future price of a commodity to rise, they may decide to use the "buy low, sell high" strategy in which they buy the commodity at a low price today in order that they may sell it later when prices rise. How might their actions actually cause a self-fulfilling prophecy in the short run? Use a demand and supply graph in your answer.

Accepted Answer

If speculators expect future prices of a

Question 18

Which statements are TRUE?
I. The price system solves the information problem by telling us the highest-valued uses for a product.
II. The price system solves the incentive problem by giving consumers an incentive to seek out substitutes when the price of a product rises.
III. The price system solves the social-equity problem by making most products affordable to middle-class households.

Accepted Answer

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

Question 19

Which economist described the market as being driven by "an invisible hand"?

Accepted Answer

A)  Milton Friedman 
B)  John Locke 
C)  Friedrich Hayek 
D)  Adam Smith 
A)  Milton Friedman 
B)  John Locke 
C)  Friedrich Hayek 
D)  Adam Smith

Question 20

Ethanol and sugar are both made from sugar cane, and ethanol can be used as a fuel substitute for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______.

Accepted Answer

A)  demand for; decrease; decrease 
B)  supply of; increase; increase 
C)  supply of; decrease; increase 
D)  demand for; increase; increase 
A)  demand for; decrease; decrease 
B)  supply of; increase; increase 
C)  supply of; decrease; increase 
D)  demand for; increase; increase

Exam 7: The Price System

MOST economies today are

Use the following to answer questions: Figure: Demand Curve -(Figure: Demand Curve) Refer to the figure. Which point on the graph represents the value of the good in its next highest valued use?

Prices are incentives for sellers.

When speculators are right, they:

The brief United States attempt to centrally plan the oil market was in response to:

Which statement explains why prices are so important in a market economy?

When they guess correctly about price movements, speculators:

Although large parts of beef cattle become meat products, other parts become leather jackets. As the demand for beef rises, what happens in the market for leather jackets?

It's worthwhile to grow roses in Kenya because:

If the price of ice in a hurricane-devastated area suddenly skyrockets, then ice suppliers will:

A retail outlet sells bottled water. Which scenario would cause them to use a "buy low and sell high" strategy with bottled water?

In the event of an oil supply disruption, the price system provides incentives to allocate oil away from low-value uses.

Which example is a reasonable analogy of the interconnectedness and coordination of markets?

How can a futures contract mitigate exchange rate risk for an exporting firm?

Which economist described the market as being driven by "an invisible hand"?

Ethanol and sugar are both made from sugar cane, and ethanol can be used as a fuel substitute for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______.

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

Ethanol and sugar are both made from sugar cane, and ethanol can be used as a fuel substitute for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the sugar to and its price to __.