Question 1

When a consumer compares the price of a good to the value of that good, he or she is really comparing:

Accepted Answer

A)  the price of other substitute goods. 
B)  the value of the good to the costs associated with producing the good. 
C)  the value of the good to its opportunity cost. 
D)  the price of the good to the value of other substitute goods. 
A)  the price of other substitute goods. 
B)  the value of the good to the costs associated with producing the good. 
C)  the value of the good to its opportunity cost. 
D)  the price of the good to the value of other substitute goods.

Question 2

Speculators ________ prices today and ________ prices in the future.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; do not change 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; do not change

Question 3

Currency futures have the price of 10,000 euros at $12,000 ($1.20 per euro) two years from now; Rosita just entered a contract to buy 10,000 euros from Carl in two years. If the price of a euro is actually $1.50 in two years, how much does each make or lose?

Accepted Answer

A)  Carl loses $3,000 and Rosita makes $3,000. 
B)  Carl makes $3,000 and Rosita loses $3,000. 
C)  Carl loses $12,000 and Rosita makes $15,000. 
D)  Carl makes $12,000 and Rosita loses $15,000. 
A)  Carl loses $3,000 and Rosita makes $3,000. 
B)  Carl makes $3,000 and Rosita loses $3,000. 
C)  Carl loses $12,000 and Rosita makes $15,000. 
D)  Carl makes $12,000 and Rosita loses $15,000.

Question 4

The locovore movement encourages eating locally produced food to reduce the greenhouse gases emitted from transporting food long distances, placing upward pressure on local land prices as farmland becomes more valuable. Which statement reflects what will likely occur as a result?

Accepted Answer

A)  The price of beef falls as more people eat beef. 
B)  Hunting animals becomes more common. 
C)  Local forests become less common. 
D)  In the short term, the price of lumber rises. 
A)  The price of beef falls as more people eat beef. 
B)  Hunting animals becomes more common. 
C)  Local forests become less common. 
D)  In the short term, the price of lumber rises.

Question 5

Suppose that a war in the Middle East makes oil increasingly scarce. Oil usage should:

Accepted Answer

A)  increase in low-value uses. 
B)  fall the most in high-value uses. 
C)  fall the most in low-value uses. 
D)  fall equally across low- and high-value uses. 
A)  increase in low-value uses. 
B)  fall the most in high-value uses. 
C)  fall the most in low-value uses. 
D)  fall equally across low- and high-value uses.

Question 6

One of the biggest problems with centrally planned economies is that:

Accepted Answer

A)  central planners have limited information on the true value of the various ways to utilize scarce resources. 
B)  they fail to reach economic efficiency because their policies limit global trade. 
C)  workers have little incentive to work for the central planner. 
D)  they typically have higher levels of corruption compared with market economies. 
A)  central planners have limited information on the true value of the various ways to utilize scarce resources. 
B)  they fail to reach economic efficiency because their policies limit global trade. 
C)  workers have little incentive to work for the central planner. 
D)  they typically have higher levels of corruption compared with market economies.

Question 7

How do speculators mitigate shortfalls in the equilibrium quantities traded in markets?

Accepted Answer

A)  by buying up unsold inventories and then selling them when there is a shortage in the market 
B)  by causing market quantities to rise and fall 
C)  by buying up items when the prices have risen 
D)  by buying up items in advance of rising prices, and then selling them in the market when prices increase 
A)  by buying up unsold inventories and then selling them when there is a shortage in the market 
B)  by causing market quantities to rise and fall 
C)  by buying up items when the prices have risen 
D)  by buying up items in advance of rising prices, and then selling them in the market when prices increase

Question 8

Wearing costumes at Halloween is largely a Western custom. In China, the Halloween festivals are very different in that they involve more of the presentation of gifts and food to family members and others that have passed away. Which statement is a reasonable explanation for why the Western market for Halloween costumes might be important for Chinese firms and factories?

Accepted Answer

A)  The costumes that the Chinese do not use during their festivals can be exported to the West. 
B)  Knowledge of the Western Halloween festival and demand for costumes can translate into profits for Chinese producers who can produce such costumes at lower costs. 
C)  The West can export costumes for the Chinese to wear during their Halloween Festivals. 
D)  Chinese producers can try to market Chinese festivals to American consumers. 
A)  The costumes that the Chinese do not use during their festivals can be exported to the West. 
B)  Knowledge of the Western Halloween festival and demand for costumes can translate into profits for Chinese producers who can produce such costumes at lower costs. 
C)  The West can export costumes for the Chinese to wear during their Halloween Festivals. 
D)  Chinese producers can try to market Chinese festivals to American consumers.

Question 9

In a free market, the price of a good is equal to:

Accepted Answer

A)  whatever a central planner deems the good to be worth. 
B)  the good's value when employed in its highest-valued use. 
C)  the good's value if employed in its next highest-valued use. 
D)  whatever the central planner deems the good to be worth plus a "reasonable markup." 
A)  whatever a central planner deems the good to be worth. 
B)  the good's value when employed in its highest-valued use. 
C)  the good's value if employed in its next highest-valued use. 
D)  whatever the central planner deems the good to be worth plus a "reasonable markup."

Question 10

What happens to the use of steel if there is a sudden decrease in its supply? In particular, explain how the new price of steel helps to ration its use.

Accepted Answer

The decrease in supply will result in an

Question 11

Which statement describes what is NOT a difficulty of central planning?

Accepted Answer

A)  Central planning distinguishes between low- and high-value uses of an item. 
B)  Designers must ensure that planners have the incentive to move goods from low- to high-valued uses. 
C)  The skills of central planners go unappreciated. 
D)  The planners must communicating orders to everyone involved in production. 
A)  Central planning distinguishes between low- and high-value uses of an item. 
B)  Designers must ensure that planners have the incentive to move goods from low- to high-valued uses. 
C)  The skills of central planners go unappreciated. 
D)  The planners must communicating orders to everyone involved in production.

Question 12

Use the following to answer questions:
Figure: Hollywood Stock Exchange  
-(Figure: Hollywood Stock Exchange) Refer to the figure. Consider the data point referring to the movie The Adventures of Pluto Nash. These data indicate that this movie's actual opening revenues were ________ the opening revenues as predicted by the Hollywood Stock Exchange.

Accepted Answer

A)  more than 
B)  less than 
C)  the same as 
D)  an excellent estimate of 
A)  more than 
B)  less than 
C)  the same as 
D)  an excellent estimate of

Question 13

Economist Paul Heyne looked in the newspaper and found that in December of 1991 the price of wheat was $4.05 a bushel. The futures price for March 1992 was $3.87, the May price $3.64, the July price $3.33, September's price was $3.31, and the futures price for the following December was $3.51. What is the implication of these price trends?

Accepted Answer

A)  Buying wheat futures was a pretty bad deal. 
B)  Speculators were forecasting increased scarcity of wheat. 
C)  Speculators were not forecasting increased scarcity of wheat. 
D)  Selling wheat futures was a pretty bad deal. 
A)  Buying wheat futures was a pretty bad deal. 
B)  Speculators were forecasting increased scarcity of wheat. 
C)  Speculators were not forecasting increased scarcity of wheat. 
D)  Selling wheat futures was a pretty bad deal.

Question 14

In a successful economy, no firm should go bankrupt. Bankruptcy is a signal of a market failure.

Accepted Answer

A) True 
 B)False

Question 15

A high-valued use of crude oil is in the production of asphalt.

Accepted Answer

A) True 
 B)False

Question 16

If gold currently sells for $1,500 per ounce and you believe that the price of gold will increase in the future, explain how you could make money by purchasing a gold future to have 1 ounce of gold delivered to you in 3 months at a price of $1,700.

Accepted Answer

To make money, the price of gold must ri

Question 17

The central planning approach fails to achieve an optimal resource allocation because of information and incentives problems.

Accepted Answer

A) True 
 B)False

Question 18

Which scenario shows a relatively noisy signal of a future outcome?

Accepted Answer

A)  Jill's current GPA is 3.94, and she is expected to graduate in two months. Although her current classes are not yet completed, her advisor has to make a forecast about her grades for this semester. Her advisor forecasts that she will get As in all her current courses and will graduate with honors. 
B)  Alex's current credit rating is low. She has a history of late payments, and debts that have gone to collection agencies. She is denied new credit because the credit card company forecasts that she will become delinquent on the payments. 
C)  In February of 2009 Bill produces and releases a movie about the current President of the United States that projects what two terms of his leadership and polices might look like in terms of foreign relations, and the economic path the United States will follow out of the recession. 
D)  John is a speculator, and he decides to buy up corn futures because the government has mandated that all new vehicles must use corn-based fuels within one year. 
A)  Jill's current GPA is 3.94, and she is expected to graduate in two months. Although her current classes are not yet completed, her advisor has to make a forecast about her grades for this semester. Her advisor forecasts that she will get As in all her current courses and will graduate with honors. 
B)  Alex's current credit rating is low. She has a history of late payments, and debts that have gone to collection agencies. She is denied new credit because the credit card company forecasts that she will become delinquent on the payments. 
C)  In February of 2009 Bill produces and releases a movie about the current President of the United States that projects what two terms of his leadership and polices might look like in terms of foreign relations, and the economic path the United States will follow out of the recession. 
D)  John is a speculator, and he decides to buy up corn futures because the government has mandated that all new vehicles must use corn-based fuels within one year.

Question 19

Speculators often raise prices today but lower prices in the future.

Accepted Answer

A) True 
 B)False

Question 20

Use the following to answer questions:
Figure: Hollywood Stock Exchange  
-(Figure: Hollywood Stock Exchange) The data points in the figure represent the opening revenue for movies plotted against their predicted opening revenues according to the Hollywood Stock Exchange (HSX). Most of them fall along the 45-degree line. What does this suggest?

Accepted Answer

A)  The HSX does not do a good job predicting movie revenues. 
B)  On average, most movies do worse than their HSX predictions. 
C)  On average, the HSX accurately predicts movie revenues. 
D)  On average, most movies do better than their HSX predictions. 
A)  The HSX does not do a good job predicting movie revenues. 
B)  On average, most movies do worse than their HSX predictions. 
C)  On average, the HSX accurately predicts movie revenues. 
D)  On average, most movies do better than their HSX predictions.

Exam 7: The Price System

When a consumer compares the price of a good to the value of that good, he or she is really comparing:

Speculators ________ prices today and ________ prices in the future.

Currency futures have the price of 10,000 euros at $12,000 ($1.20 per euro) two years from now; Rosita just entered a contract to buy 10,000 euros from Carl in two years. If the price of a euro is actually $1.50 in two years, how much does each make or lose?

The locovore movement encourages eating locally produced food to reduce the greenhouse gases emitted from transporting food long distances, placing upward pressure on local land prices as farmland becomes more valuable. Which statement reflects what will likely occur as a result?

Suppose that a war in the Middle East makes oil increasingly scarce. Oil usage should:

One of the biggest problems with centrally planned economies is that:

How do speculators mitigate shortfalls in the equilibrium quantities traded in markets?

In a free market, the price of a good is equal to:

What happens to the use of steel if there is a sudden decrease in its supply? In particular, explain how the new price of steel helps to ration its use.

Which statement describes what is NOT a difficulty of central planning?

In a successful economy, no firm should go bankrupt. Bankruptcy is a signal of a market failure.

A high-valued use of crude oil is in the production of asphalt.

If gold currently sells for $1,500 per ounce and you believe that the price of gold will increase in the future, explain how you could make money by purchasing a gold future to have 1 ounce of gold delivered to you in 3 months at a price of $1,700.

The central planning approach fails to achieve an optimal resource allocation because of information and incentives problems.

Which scenario shows a relatively noisy signal of a future outcome?

Speculators often raise prices today but lower prices in the future.

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

Speculators prices today and prices in the future.