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

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 ________.

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 books and 2,000 books are selling for 10 cents each. Shares for sales between 2,000 and 3,000 books are selling for 30 cents each. Shares for sales between 3,000 and 4,000 books 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?

Which of the following observations would be consistent with the effect of oil speculation?

If the futures price is much higher than the spot or current price, that is a sign that smart people with their own money on the line think that:

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

During the 1973-1974 oil crisis, the U.S. government implemented price controls and other regulations in order to try and keep prices low. Were these policies were the best way to lower prices for consumers? What would have happened in the absence of these price controls?

Reference: Ref 7-1 (Figure: Demand Curve) Refer to the figure. Which part of the demand curve represents the satisfied wants?

A rising price for gasoline may mean that new homebuilders switch from using asphalt driveways to brick driveways.

Which of the following scenarios would cause a speculator to ―buy low and sell high‖?

Speculators:

War is expected to break out in the Middle East. Use two separate supply and demand diagrams to illustrate (1) the current price of oil and (2) the future price of oil. Using the same two supply and demand diagrams, show how speculators affect the current price of oil and future price of oil.

Failing to understand the signaling role of prices, consumers would complain of ________ and politicians would call for ________.

The major factor determining the price of orange juice futures is the:

The wearing of 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 of the following is a reasonable explanation for why the Western market for Halloween costumes might be important for Chinese firms and factories?

Factors other than war in the Middle East-e.g., OPEC decisions, oil discoveries, and the demand for oil-also impact oil futures, so the future price of oil is a:

Oil futures prices are a noisy signal of war in the Middle East. Explain whether this statement is true or false.

Modern Bytes Computers allows its sales team to buy and sell shares that pay out $1 only if the sales in the future fall in a certain range. Suppose that currently shares for sales between 15,000 and 20,000 computers are selling for 20 cents each. Shares for sales between 20,000 and 25,000 computers are selling for 30 cents each. Shares for sales between 25,000 and 30,000 computers are selling for 30 cents each. Based on this information, what is the probability of Modern Bytes Computers selling between 15,000 and 25,000 computers?

Suppose you have been hired by the Hollywood Stock Exchange to make predictions on how much a movie will make during its first four weekends at the box office. What kind of information would you use to make your forecast?

Futures markets in coal can signal which of the following kinds of information?

From the chapter discussion, why did increased ethanol production and consumption in Brazil result in higher sugar prices?