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

When the price of pizza increases, consumers have an incentive to:

Reference: Ref 7-2 (Figure: Demand Curve Sections) Refer to the figure. The section of the demand curve labeled A represents the:

Your retail outlet sells bottled water. Which of the following scenarios would cause you to use a ―buy low and sell high‖ strategy with bottled water?

In a demand-and-supply diagram, the market price represents the value of the:

The true cost of a good is its money price rather than its opportunity cost.

Central planning of resource allocation:

John and Tom enter into a futures contract where John agrees to deliver 500 crates of coffee to Tom one year from now. Tom agrees to pay a price of $200 per crate. A year from now, John and Tom find that the market price of coffee is $210 per crate. How might they make a cash settlement on the contract?

Large scale central planning has been abandoned throughout the world because of ______ problems.

The advantages of prediction markets include:

Hundreds of thousands of producers working across the world cooperate to ensure that millions of consumers can have the goods and services they desire. These producers do not know each other and are not coordinated by a central agency. Their actions are directed simply by:

Futures contracts reduce future uncertainty. Which of the following statements show how this is achieved? I. Futures contracts allow the parties involved to mitigate possible shortages in quantities of the good. II. Futures contracts allow the parties involved to mitigate unexpected changes in price that could hurt earnings. III. Futures contracts always allow the seller to receive a price that is higher than the market price for the product.

Sugar cane can be used to produce sugar as well as fuel ethanol for automobiles. Falling oil prices will cause a(n) ________ in the supply of sugar resulting in ______ candy prices.

The central planning approach failed to optimally allocate oil during the 1973-1974 oil crisis because of problems of:

Suppose that speculators expect that a war in the Middle East is likely next year, which could cause a significant decrease in the supply of oil. a. What could the speculators do to profit from their expectation? b. What would be the possible impact of the war on the oil market without speculation? c. What would be the possible impact of the war on the oil market with the action taken by the speculators described in part a? d. How would the action taken by the speculators impact the society?

When the price of oil rises, consumers economize by buying ________ and by ________.

Newly formed trade unions raise wages for workers in Country X where cars are manufactured. The higher wages increase costs for the car manufacturers who relocate to Country Y where labor costs are lower. Car manufacturing begins to thrive in Country Y relative to Country X. Which answer best describes the concept highlighted by this scenario?

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.

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

If people suddenly expect that a severe drought will reduce the supply of grain, the price of grain futures will be:

The bankruptcy of firms: