Question 1

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

Accepted Answer

A)  in its next lowest valued use. 
B)  in its next highest valued use. 
C)  to the highest bidder among those who have satisfied their wants for the good. 
D)  given the resources used to produce the good. 
A)  in its next lowest valued use. 
B)  in its next highest valued use. 
C)  to the highest bidder among those who have satisfied their wants for the good. 
D)  given the resources used to produce the good.

Question 2

Which of the following scenarios shows a relatively noisy signal of a future outcome?

Accepted Answer

A)  Your current GPA is 3.94, and you are expected to graduate in two months. Although your current classes are not yet completed, your advisor has to make a forecast about your grades for this semester. She forecasts that you will get As in all your current courses and will graduate with honors. 
B)  Your current credit rating is low. You have a history of late payments, and debts that have gone to collection agencies. You are denied new credit because the credit card company forecasts that you will become delinquent on the payments. 
C)  In February of 2009 you produce and release a movie about President Barack Obama 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)  You are a speculator, and you decide to buy up corn futures because the government has mandated that all new vehicles must use corn-based fuels within one year. 
A)  Your current GPA is 3.94, and you are expected to graduate in two months. Although your current classes are not yet completed, your advisor has to make a forecast about your grades for this semester. She forecasts that you will get As in all your current courses and will graduate with honors. 
B)  Your current credit rating is low. You have a history of late payments, and debts that have gone to collection agencies. You are denied new credit because the credit card company forecasts that you will become delinquent on the payments. 
C)  In February of 2009 you produce and release a movie about President Barack Obama 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)  You are a speculator, and you decide to buy up corn futures because the government has mandated that all new vehicles must use corn-based fuels within one year.

Question 3

Reference: Ref 7-3 (Figure: Hollywood Stock Exchange) Refer to the figure and 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 4

Reference: Ref 7-1 (Figure: Demand Curve) Refer to the figure. Which point on the graph represents an unsatisfied want?

Accepted Answer

A)  Point B 
B)  Point A and Point B 
C)  Point A 
D)  Point C 
A)  Point B 
B)  Point A and Point B 
C)  Point A 
D)  Point C

Question 5

Which economist described the market as being driven by ―an invisible hand‖?

Accepted Answer

A)  Milton Friedman 
B)  John Locke 
C)  Friedrich Hayek 
D)  Adam Smith 
A)  Milton Friedman 
B)  John Locke 
C)  Friedrich Hayek 
D)  Adam Smith

Question 6

Markets work well because of the information delivered by:

Accepted Answer

A)  the government. 
B)  the supply curve. 
C)  the demand curve. 
D)  prices. 
A)  the government. 
B)  the supply curve. 
C)  the demand curve. 
D)  prices.

Question 7

The central planning approach failed because of problems of information and incentives.

Accepted Answer

A) True 
 B)False

Question 8

A ―buy low, sell high‖ strategy allows the speculator to make a profit from differences in market prices.

Accepted Answer

A) True 
 B)False

Question 9

Prices provide little information about where resources should best be allocated in an economy.

Accepted Answer

A) True 
 B)False

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

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

Which of the following scenarios shows a relatively noisy signal of a future outcome?

Reference: Ref 7-3 (Figure: Hollywood Stock Exchange) Refer to the figure and 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.

Reference: Ref 7-1 (Figure: Demand Curve) Refer to the figure. Which point on the graph represents an unsatisfied want?

Which economist described the market as being driven by ―an invisible hand‖?

Markets work well because of the information delivered by:

The central planning approach failed because of problems of information and incentives.

A ―buy low, sell high‖ strategy allows the speculator to make a profit from differences in market prices.

Prices provide little information about where resources should best be allocated in an economy.

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