question
Millions of producers working across the world cooperate to ensure that many more 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:
answer
self-interest.
question
Rising oil prices during the 1970s shifted flower production from California to Kenya. Which of the following answers explains this shift?
answer
Markets are linked to one another.
question
A decrease in the demand for a good sold in Market A:
answer
might affect other markets, even those halfway across the world.
question
Both ethanol and sugar are made from sugar cane and ethanol can be used as a substitute for oil. As the price of oil increases, Brazilians shift sugar cane from sugar production to ethanol production, thereby:
answer
increasing the price of sugar.
question
Sugar cane can be used to produce sugar as well as the fuel ethanol for automobiles. Falling oil prices will cause a(n) ________ in the supply of sugar, resulting in ______ candy prices.
answer
increase; lower
question
The central planning approach proved ________ because ________.
answer
a failure; central planners lack information and incentives to allocate resources efficiently
question
The text states: "The great economic problem is to arrange our limited resources to satisfy as many of our wants as possible." How does a market achieve this goal?
answer
The forces of demand and supply use prices as a signaling device that directs resources to their highest-value uses.
question
Markets have the advantage over central planning as the method of resource allocation because:
answer
resources travel to their highest-value uses.
question
The great economic problem is to:
answer
arrange our limited resources to satisfy as many of our infinite wants as possible.
question
After a hurricane knocks out power to thousands of households, the price of electric generators increases threefold. According to economists:
answer
this discourages the use of electric generators in low-value uses, making them more readily available for high-value uses.
question
Increasing prices act as a signal to:
answer
suppliers to increase the quantity supplied in those markets.
question
Suppose that a hurricane hits both North Carolina and South Carolina. North Carolina has severe price-gouging laws in place while South Carolina has none. Both states have a shortage of ice. Which state will recover from its ice shortage more quickly?
answer
South Carolina will recover more quickly because prices can adjust to make businesses willing to invest in ice production.
question
How do speculators mitigate shortfalls in the equilibrium quantities traded in markets?
answer
by buying up items in advance of rising prices, and then selling them in the market when prices increase
question
Jeff agrees to buy 40,000 pounds of frozen pork bellies for delivery one year from now; upon delivery he will pay $32,400. This transaction is called a:
answer
futures contract.
question
If people suddenly expect that a severe drought will reduce the supply of grain, the price of grain futures will be:
answer
bid higher.
question
Futures markets are often good predictors of what will happen to the price of goods in the future because:
answer
speculators have an incentive to "get it right" because their own money is on the line.
question
A market in which buyers and sellers trade shares of stock, where the share prices reflect the probability of some future event is called a:
answer
prediction market.
question
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 textbooks and 2,000 textbooks are selling for 10 cents each. Shares for sales between 2,000 and 3,000 textbooks are selling for 30 cents each. Shares for sales between 3,000 and 4,000 textbooks 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?
answer
70%
question
A legal maximum price at which a good can be sold is a price:
answer
ceiling.
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Under a binding price ceiling, one expects the quality of a good to:
answer
fall.
question
How can sellers increase profits when they face a price ceiling?
answer
reduce the quality of the product and provide less customer service
question
When a price ceiling is in effect:
answer
some mutually beneficial trades between buyers and sellers do not occur.
question
Price controls cause resources to be misallocated by:
answer
distorting the signals of demanders' willingness to pay and eliminating the incentives for suppliers to supply.
question
A rent control is a regulation that:
answer
prevents rents from rising to equilibrium levels.
question
New housing takes some time to build, so rent control creates larger shortages in the:
answer
long run than in the short run because long-run supply is more elastic.
question
Why do many consumers and politicians advocate for price controls?
answer
Price controls appear to be a straightforward response to the problem of price increases.
question
An economy with permanent, universal price controls is in essence a:
answer
command economy.
question
A price floor is:
answer
a minimum price allowed by law.
question
Price floors would create all of the following effects EXCEPT:
answer
wasteful decreases in product quality.
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