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

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 3

Perhaps the biggest sign of the accuracy of the HSX market is the sale of its data to Hollywood studios eager to improve their predictions about future blockbusters.

Accepted Answer

A) True 
 B)False

Question 4

Speculators who think that a war in the Middle East is likely will ______ oil futures, pushing ______ the futures price.

Accepted Answer

A)  buy; up 
B)  buy; down 
C)  sell; up 
D)  sell; down 
A)  buy; up 
B)  buy; down 
C)  sell; up 
D)  sell; down

Question 5

Suppose that it is summer 2012 and President Obama is running for reelection. In the Iowa Electronic Markets, a share of Obama is selling for $0.54 and will give $1 if Obama wins the election. Market participants believe that Obama's probability of winning reelection is:

Accepted Answer

A)  4.6 percent. 
B)  5.4 percent. 
C)  54 percent. 
D)  46 percent. 
A)  4.6 percent. 
B)  5.4 percent. 
C)  54 percent. 
D)  46 percent.

Question 6

Which of the following scenarios would cause a speculator in chicken and beef futures to use a ―buy low and sell high‖ strategy for chicken?

Accepted Answer

A)  A report emerges from the Surgeon General that eating red meat in moderate amounts allows for increased brain power. 
B)  Cows are found to be infected with ―Mad Cow Disease‖ and must be destroyed. 
C)  Households begin eating more meals at restaurants. 
D)  Chickens are found to spread the Avian Flu disease among humans. 
A)  A report emerges from the Surgeon General that eating red meat in moderate amounts allows for increased brain power. 
B)  Cows are found to be infected with ―Mad Cow Disease‖ and must be destroyed. 
C)  Households begin eating more meals at restaurants. 
D)  Chickens are found to spread the Avian Flu disease among humans.

Question 7

Suppose that war in the Middle East reduces the supply of oil forcing the country to economize on oil. How should the central planner optimize the economic problem under this situation?

Accepted Answer

A)  shift oil out of uses where good substitutes for oil exist 
B)  supply oil for uses where few substitutes for oil exist 
C)  Both of the answers are correct. 
D)  Neither of the answers is correct. 
A)  shift oil out of uses where good substitutes for oil exist 
B)  supply oil for uses where few substitutes for oil exist 
C)  Both of the answers are correct. 
D)  Neither of the answers is correct.

Question 8

Suppose speculators expect that the supply of oil will decrease next year and as a result, buy up oil today and put it into storage. This should cause the value of that oil to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  either increase or decrease. 
D)  remain unchanged. 
A)  increase. 
B)  decrease. 
C)  either increase or decrease. 
D)  remain unchanged.

Question 9

Reference: Ref 7-1 (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 10

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.

Question 11

If speculators expect that the future price of corn will be higher, they will cause today's price of corn to ________ and the future price of corn to be ________ than it would have been without speculation.

Accepted Answer

A)  decrease; higher 
B)  increase; lower 
C)  decrease; lower 
D)  increase; higher 
A)  decrease; higher 
B)  increase; lower 
C)  decrease; lower 
D)  increase; higher

Question 12

Recall from the text that weather is a very important determinant for futures prices of orange juice. Using a supply and demand graph, explain why an expectation of bad weather in the future might cause futures prices to rise today.

Accepted Answer

A prediction of bad weather translates t

Question 13

What happens in one particular market may have an effect on other markets.

Accepted Answer

A) True 
 B)False

Question 14

It is Valentine's Day in the United States, and you give your lover one dozen roses that were freshly picked 72 hours ago from the fields of Kenya. What made this gift possible?

Accepted Answer

A)  the United Nations Director of Horticultural Operations, who oversees the planting and transportation of flowers around the world 
B)  the Jennifer Flowers Act that helps coordinate the logistics of agricultural trade flows between the United States and Kenya 
C)  economic markets 
D)  All of the answers are correct. 
A)  the United Nations Director of Horticultural Operations, who oversees the planting and transportation of flowers around the world 
B)  the Jennifer Flowers Act that helps coordinate the logistics of agricultural trade flows between the United States and Kenya 
C)  economic markets 
D)  All of the answers are correct.

Question 15

The Hollywood Stock Exchange is useful for:

Accepted Answer

A)  predicting ratings (e.g., G, PG, PG-13, and R) of yet-to-be- released films. 
B)  predicting movie spoilers of yet-to-be-released films. 
C)  estimating the future profits of films. 
D)  estimating the future production costs of films. 
A)  predicting ratings (e.g., G, PG, PG-13, and R) of yet-to-be- released films. 
B)  predicting movie spoilers of yet-to-be-released films. 
C)  estimating the future profits of films. 
D)  estimating the future production costs of films.

Question 16

Brazil is the world's largest sugar cane producer and sugar cane can be used for producing sugar and fuel ethanol for automobiles. Which of the following sequence of events is correct?

Accepted Answer

A)  Rising oil prices cause Brazilian producers to shift sugar cane production from sugar to fuel ethanol. The decrease in sugar supply raises the price of candy bars. 
B)  Rising oil prices cause Brazilian producers to shift sugar cane production from fuel ethanol to sugar. The increase in sugar supply decreases the price of candy bars. 
C)  Falling oil prices cause Brazilian producers to shift sugar cane production from sugar to fuel ethanol. The increase in sugar supply raises the price of candy bars. 
D)  Falling oil prices cause Brazilian producers to shift sugar cane production from fuel ethanol to sugar. The increase in sugar supply raises the price of candy bars. 
A)  Rising oil prices cause Brazilian producers to shift sugar cane production from sugar to fuel ethanol. The decrease in sugar supply raises the price of candy bars. 
B)  Rising oil prices cause Brazilian producers to shift sugar cane production from fuel ethanol to sugar. The increase in sugar supply decreases the price of candy bars. 
C)  Falling oil prices cause Brazilian producers to shift sugar cane production from sugar to fuel ethanol. The increase in sugar supply raises the price of candy bars. 
D)  Falling oil prices cause Brazilian producers to shift sugar cane production from fuel ethanol to sugar. The increase in sugar supply raises the price of candy bars.

Question 17

Can speculators who expect prices to rise actually cause those prices to rise in the short run?

Accepted Answer

A)  Yes, if they buy up enough of the good, they will increase demand and thus raise the price of the product. 
B)  Yes, if they expect the price to rise, sellers will automatically raise prices for their products. 
C)  No, because speculators do not have enough power to cause an increase in demand. 
D)  No, because speculators' actions cannot influence a market equilibrium. 
A)  Yes, if they buy up enough of the good, they will increase demand and thus raise the price of the product. 
B)  Yes, if they expect the price to rise, sellers will automatically raise prices for their products. 
C)  No, because speculators do not have enough power to cause an increase in demand. 
D)  No, because speculators' actions cannot influence a market equilibrium.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Explain how speculation tends to smooth prices over time and increase welfare. Use the model of demand and supply to illustrate your explanation.

Accepted Answer

The following figure is reproduced from

Question 20

Recently, economic engineers have begun to design ________ to increase the signal to noise ratio of ________.

Accepted Answer

A)  prices; markets 
B)  markets; prices 
C)  incentives; behaviors 
D)  opportunity costs; prices 
A)  prices; markets 
B)  markets; prices 
C)  incentives; behaviors 
D)  opportunity costs; prices

Exam 7: The Price System: Signals, Speculation, and Prediction

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

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

Perhaps the biggest sign of the accuracy of the HSX market is the sale of its data to Hollywood studios eager to improve their predictions about future blockbusters.

Speculators who think that a war in the Middle East is likely will ______ oil futures, pushing ______ the futures price.

Suppose that it is summer 2012 and President Obama is running for reelection. In the Iowa Electronic Markets, a share of Obama is selling for $0.54 and will give $1 if Obama wins the election. Market participants believe that Obama's probability of winning reelection is:

Which of the following scenarios would cause a speculator in chicken and beef futures to use a ―buy low and sell high‖ strategy for chicken?

Suppose that war in the Middle East reduces the supply of oil forcing the country to economize on oil. How should the central planner optimize the economic problem under this situation?

Suppose speculators expect that the supply of oil will decrease next year and as a result, buy up oil today and put it into storage. This should cause the value of that oil to:

Reference: Ref 7-1 (Figure: Demand Curve) Refer to the figure. Which point on the graph represents the value of the good in its next highest valued use?

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

If speculators expect that the future price of corn will be higher, they will cause today's price of corn to ________ and the future price of corn to be ________ than it would have been without speculation.

Recall from the text that weather is a very important determinant for futures prices of orange juice. Using a supply and demand graph, explain why an expectation of bad weather in the future might cause futures prices to rise today.

What happens in one particular market may have an effect on other markets.

It is Valentine's Day in the United States, and you give your lover one dozen roses that were freshly picked 72 hours ago from the fields of Kenya. What made this gift possible?

The Hollywood Stock Exchange is useful for:

Brazil is the world's largest sugar cane producer and sugar cane can be used for producing sugar and fuel ethanol for automobiles. Which of the following sequence of events is correct?

Can speculators who expect prices to rise actually cause those prices to rise in the short run?

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

Explain how speculation tends to smooth prices over time and increase welfare. Use the model of demand and supply to illustrate your explanation.

Recently, economic engineers have begun to design ________ to increase the signal to noise ratio of ________.

The Big Ideas in Economics

The Power of Trade and Comparative Advantage

Business Fluctuations: Aggregate Demand and Supply

Equilibrium: How Supply and Demand Determine Prices

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 and Pricing Strategy

Oligopoly and Game Theory

Competing for Monopoly: the Economics of Network Goods

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

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

Gdp and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation, and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Supply and Demand

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Filters

Speculators who think that a war in the Middle East is likely will oil futures, pushing the futures price.

If speculators expect that the future price of corn will be higher, they will cause today's price of corn to and the future price of corn to be than it would have been without speculation.

Recently, economic engineers have begun to design to increase the signal to noise ratio of .