Question 1

Prices are the heart of the:

Accepted Answer

A)  political process. 
B)  market process. 
C)  business cycle. 
D)  theory of markets. 
A)  political process. 
B)  market process. 
C)  business cycle. 
D)  theory of markets.

Question 2

Reference: Ref 7-3 (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 revenue. 
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 revenue. 
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.

Question 3

The central planning approach proved ________ because ________.

Accepted Answer

A)  successful; central planners use state-of the-art military computers to efficiently allocate resources 
B)  a failure; it was never given enough time to be successfully implemented in most countries 
C)  successful; central planners, unlike CEOs, are not solely interested in maximizing profits and raising prices 
D)  a failure; central planners lack information and incentives to allocate resources efficiently 
A)  successful; central planners use state-of the-art military computers to efficiently allocate resources 
B)  a failure; it was never given enough time to be successfully implemented in most countries 
C)  successful; central planners, unlike CEOs, are not solely interested in maximizing profits and raising prices 
D)  a failure; central planners lack information and incentives to allocate resources efficiently

Question 4

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 5

Markets coordinate in a way that links buyers and sellers who rely primarily on:

Accepted Answer

A)  voluntary cooperation and undirected actions. 
B)  management direction of economic actions. 
C)  governmental policies to direct the economic actions. 
D)  the benevolence and good will of the market participants. 
A)  voluntary cooperation and undirected actions. 
B)  management direction of economic actions. 
C)  governmental policies to direct the economic actions. 
D)  the benevolence and good will of the market participants.

Question 6

Which of the following encompasses all the relevant information about the uses of a particular good?

Accepted Answer

A)  the cost of producing the good 
B)  the price of the good 
C)  the value of the good to consumers 
D)  There is no way for just one number to encompass all the relevant information about the uses of a good. 
A)  the cost of producing the good 
B)  the price of the good 
C)  the value of the good to consumers 
D)  There is no way for just one number to encompass all the relevant information about the uses of a good.

Question 7

Based on economist Richard Roll's work, the best way to predict future weather may be:

Accepted Answer

A)  to listen to meteorologists. 
B)  to look at the difference between futures and spot prices of orange juice. 
C)  to wait and see what the weather turns out to be. 
D)  to look at past trends in orange production. 
A)  to listen to meteorologists. 
B)  to look at the difference between futures and spot prices of orange juice. 
C)  to wait and see what the weather turns out to be. 
D)  to look at past trends in orange production.

Question 8

In a successful economy, some firms should always be:

Accepted Answer

A)  making profits. 
B)  breaking even. 
C)  going bankrupt. 
D)  All of the answers are correct. 
A)  making profits. 
B)  breaking even. 
C)  going bankrupt. 
D)  All of the answers are correct.

Question 9

With large natural diamond deposits, South Africa is famous for its diamond exports. The international demand for diamonds for industrial and other purposes such as jewelry has led to the production of synthetic diamonds by other countries such as the United States. Which answer best describes the concept highlighted in this scenario?

Accepted Answer

A)  International cooperation has reduced over the years. 
B)  Consumers prefer synthetic diamonds to natural ones. 
C)  Prices provide incentives for sellers. 
D)  Markets are no longer linked together. 
A)  International cooperation has reduced over the years. 
B)  Consumers prefer synthetic diamonds to natural ones. 
C)  Prices provide incentives for sellers. 
D)  Markets are no longer linked together.

Question 10

Collected by workers in Peru, cochineal bugs are used to dye certain U.S. food items red. Market activities, such as this one, can best be described as:

Accepted Answer

A)  cooperative, voluntary, and undirected. 
B)  chaotic and primitive. 
C)  directed and uncooperative. 
D)  orderly, involuntary, and centrally directed. 
A)  cooperative, voluntary, and undirected. 
B)  chaotic and primitive. 
C)  directed and uncooperative. 
D)  orderly, involuntary, and centrally directed.

Question 11

An equilibrium price splits the uses of the good into ________ part(s).

Accepted Answer

A)  one and only one 
B)  two 
C)  three 
D)  four or more 
A)  one and only one 
B)  two 
C)  three 
D)  four or more

Question 12

The equilibrium price in the market represents the:

Accepted Answer

A)  value of the good in its next highest valued use. 
B)  value of the good in all its uses. 
C)  price of the good in its lowest valued use. 
D)  average cost of producing the good. 
A)  value of the good in its next highest valued use. 
B)  value of the good in all its uses. 
C)  price of the good in its lowest valued use. 
D)  average cost of producing the good.

Question 13

Which of the following can explain why many economists have often compared the functioning of worldwide markets to that of a computer?

Accepted Answer

A)  Worldwide markets can allocate resources randomly just as a computer can generate random data. 
B)  Without the use of computers, markets cannot solve the information problem of resource use. 
C)  Without the use of computers, markets cannot solve the allocation problem of resource use. 
D)  Worldwide markets can solve very large resource-allocation problems by simply using the price signal mechanism. 
A)  Worldwide markets can allocate resources randomly just as a computer can generate random data. 
B)  Without the use of computers, markets cannot solve the information problem of resource use. 
C)  Without the use of computers, markets cannot solve the allocation problem of resource use. 
D)  Worldwide markets can solve very large resource-allocation problems by simply using the price signal mechanism.

Question 14

As the price of oil increases, Brazilians will shift sugar cane from sugar production to ethanol production, thereby holding down fuel costs and reducing the price of sugar.

Accepted Answer

A) True 
 B)False

Question 15

You agree to buy 40,000 pounds of frozen pork bellies for delivery one year from now; upon delivery you will pay $32,400. This transaction is called a:

Accepted Answer

A)  prediction settlement. 
B)  timing indenture. 
C)  futures contract. 
D)  hog agreement. 
A)  prediction settlement. 
B)  timing indenture. 
C)  futures contract. 
D)  hog agreement.

Question 16

Many times in economic markets we see new firms drive old firms out of business with lower costs and better products. Are these ―business failures‖ also ―market failures‖? Explain why or why not.

Accepted Answer

Business failures (e.g., bankruptcy, los

Question 17

Markets are advantageous over central planning as methods of resource allocation because:

Accepted Answer

A)  resources travel to their highest value uses. 
B)  resources are allocated equally across all uses. 
C)  resources are distributed to those goods that have a larger number of substitutes. 
D)  central planners have never been shown to correctly identify high value uses of products. 
A)  resources travel to their highest value uses. 
B)  resources are allocated equally across all uses. 
C)  resources are distributed to those goods that have a larger number of substitutes. 
D)  central planners have never been shown to correctly identify high value uses of products.

Question 18

A futures contract can make a future price certain.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Explain what Adam Smith meant when he said that the market operates as if ―an invisible hand‖ is guiding the process.

Accepted Answer

He meant that through the information de

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

Prices are the heart of the:

Reference: Ref 7-3 (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?

The central planning approach proved ________ because ________.

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

Markets coordinate in a way that links buyers and sellers who rely primarily on:

Which of the following encompasses all the relevant information about the uses of a particular good?

Based on economist Richard Roll's work, the best way to predict future weather may be:

In a successful economy, some firms should always be:

Collected by workers in Peru, cochineal bugs are used to dye certain U.S. food items red. Market activities, such as this one, can best be described as:

An equilibrium price splits the uses of the good into ________ part(s).

The equilibrium price in the market represents the:

Which of the following can explain why many economists have often compared the functioning of worldwide markets to that of a computer?

As the price of oil increases, Brazilians will shift sugar cane from sugar production to ethanol production, thereby holding down fuel costs and reducing the price of sugar.

You agree to buy 40,000 pounds of frozen pork bellies for delivery one year from now; upon delivery you will pay $32,400. This transaction is called a:

Many times in economic markets we see new firms drive old firms out of business with lower costs and better products. Are these ―business failures‖ also ―market failures‖? Explain why or why not.

Markets are advantageous over central planning as methods of resource allocation because:

A futures contract can make a future price certain.

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.

Explain what Adam Smith meant when he said that the market operates as if ―an invisible hand‖ is guiding the process.

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

The central planning approach proved because .