ECN-2010 Final Exam| Ques ons and answers |
Updated new
CHAPTER 7
The price system: signals, specula on, and predic on
If speculators expect that the future price of corn will be higher, they will cause today's price of
corn to ________ and the future price of corn to be ________ than it would have been without
specula on.
increase; lower
With specula on, prices:
become less vola le than they otherwise would be.
Speculators:
move resources from low-value use to high-value use.
One of the biggest problems with centrally planned economies is that:
central planners have limited informa on on the true value of the various ways to u lize scarce
resources.
Large-scale central planning has been abandoned throughout the world (except for North Korea
and Cuba) because of ______ and ___ problems.
informa on; incen ve
Futures contracts reduce future uncertainty. Which statement(s) show how this is achieved?
I. Futures contracts allow the par es involved to mi gate possible shortages in quan es of the
good.
II. Futures contracts allow the par es involved to mi gate 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.
I and II only
Suppose that everyone believes war is about to break out in the Middle East, which will
decrease the supply of oil. One should:
,buy oil futures because the reduced oil supply will raise the price of oil.
A futures contract is:
a contract to buy or sell commodi es at some point in the future at a predetermined price.
If we observe that the price of orange juice futures is extremely high, we might conclude that:
Currency futures have the price of 10,000 euros at $12,000 ($1.20 per euro) 2 years from now;
Rosita just entered a contract to buy 10,000 euros from Carl in 2 years. If the price of a euro is
actually $1.50 in 2 years, how much does each make or lose?
Carl loses $3,000, and Rosita makes $3,000.
A U.S. manufacturer arranges to purchase parts from a German supplier for 500,000 euros in 6
months. The U.S. manufacturer is concerned that the dollar will depreciate against the euro,
meaning the dollar cost of the 500,000 euros will rise. The U.S. manufacturer should:
buy a futures contract that fixes the dollar cost of 500,000 euros in 6 months.
Which of the following encompasses all the relevant informa on about the uses of a par cular
good?
the price of the good
The text states: "The 'great economic problem' is to arrange our scarce resources to sa sfy as
many of our wants as possible." How does a market achieve this goal?
The forces of demand and supply use prices as a signaling device that directs resources to their
highest-value uses.
Increasing prices act as a signal to:
suppliers to increase the quan ty supplied in those markets.
When the price of oil rises, consumers economize by buying ________ and by ________.
less oil; finding subs tutes
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?
South Carolina will recover more quickly because prices can adjust to make businesses willing to
invest in ice produc on.
The market solves the incen ve problem when alloca ng resources because the:
, consumers will pay for the good only if its value of use is greater than the price.
Which scenario would cause a speculator to "buy low and sell high"?
The government is expected to pass legisla on making it mandatory for all vehicles to use corn-
based fuels within one year.
In a successful economy, firms should be:
all of the above
- making profits
- breaking even
- going bankrupt
CHAPTER 8
Rent controls are:
an inefficient way to help the poor in raising their standard of living.
Which statement(s) is TRUE?
I. In the long run, rent-control laws create incen ves to turn apartments into hotels or parking
garages.
II. Apartment owners are less likely to do rou ne maintenance when the government controls
apartment rents.
III. Rent-controlled apartments are more likely to be allocated by discrimina on than non-rent-
controlled apartments.
I, II, and III
If a seller facing excess demand is unable to raise the price of the good due to a price ceiling, a
likely result will be:
a decrease in the quality of the product
When an effec ve price ceiling causes a shortage, some of the buyers who value the good the
most may not be able to get the good. Why does this occur?
The highest-value users cannot outbid the lower-valued users and so the seller cannot
dis nguish between them.
If a seller facing excess demand is unable to raise the price of the good due to a price ceiling,
the seller might:
decrease the level of service for that product.
Updated new
CHAPTER 7
The price system: signals, specula on, and predic on
If speculators expect that the future price of corn will be higher, they will cause today's price of
corn to ________ and the future price of corn to be ________ than it would have been without
specula on.
increase; lower
With specula on, prices:
become less vola le than they otherwise would be.
Speculators:
move resources from low-value use to high-value use.
One of the biggest problems with centrally planned economies is that:
central planners have limited informa on on the true value of the various ways to u lize scarce
resources.
Large-scale central planning has been abandoned throughout the world (except for North Korea
and Cuba) because of ______ and ___ problems.
informa on; incen ve
Futures contracts reduce future uncertainty. Which statement(s) show how this is achieved?
I. Futures contracts allow the par es involved to mi gate possible shortages in quan es of the
good.
II. Futures contracts allow the par es involved to mi gate 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.
I and II only
Suppose that everyone believes war is about to break out in the Middle East, which will
decrease the supply of oil. One should:
,buy oil futures because the reduced oil supply will raise the price of oil.
A futures contract is:
a contract to buy or sell commodi es at some point in the future at a predetermined price.
If we observe that the price of orange juice futures is extremely high, we might conclude that:
Currency futures have the price of 10,000 euros at $12,000 ($1.20 per euro) 2 years from now;
Rosita just entered a contract to buy 10,000 euros from Carl in 2 years. If the price of a euro is
actually $1.50 in 2 years, how much does each make or lose?
Carl loses $3,000, and Rosita makes $3,000.
A U.S. manufacturer arranges to purchase parts from a German supplier for 500,000 euros in 6
months. The U.S. manufacturer is concerned that the dollar will depreciate against the euro,
meaning the dollar cost of the 500,000 euros will rise. The U.S. manufacturer should:
buy a futures contract that fixes the dollar cost of 500,000 euros in 6 months.
Which of the following encompasses all the relevant informa on about the uses of a par cular
good?
the price of the good
The text states: "The 'great economic problem' is to arrange our scarce resources to sa sfy as
many of our wants as possible." How does a market achieve this goal?
The forces of demand and supply use prices as a signaling device that directs resources to their
highest-value uses.
Increasing prices act as a signal to:
suppliers to increase the quan ty supplied in those markets.
When the price of oil rises, consumers economize by buying ________ and by ________.
less oil; finding subs tutes
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?
South Carolina will recover more quickly because prices can adjust to make businesses willing to
invest in ice produc on.
The market solves the incen ve problem when alloca ng resources because the:
, consumers will pay for the good only if its value of use is greater than the price.
Which scenario would cause a speculator to "buy low and sell high"?
The government is expected to pass legisla on making it mandatory for all vehicles to use corn-
based fuels within one year.
In a successful economy, firms should be:
all of the above
- making profits
- breaking even
- going bankrupt
CHAPTER 8
Rent controls are:
an inefficient way to help the poor in raising their standard of living.
Which statement(s) is TRUE?
I. In the long run, rent-control laws create incen ves to turn apartments into hotels or parking
garages.
II. Apartment owners are less likely to do rou ne maintenance when the government controls
apartment rents.
III. Rent-controlled apartments are more likely to be allocated by discrimina on than non-rent-
controlled apartments.
I, II, and III
If a seller facing excess demand is unable to raise the price of the good due to a price ceiling, a
likely result will be:
a decrease in the quality of the product
When an effec ve price ceiling causes a shortage, some of the buyers who value the good the
most may not be able to get the good. Why does this occur?
The highest-value users cannot outbid the lower-valued users and so the seller cannot
dis nguish between them.
If a seller facing excess demand is unable to raise the price of the good due to a price ceiling,
the seller might:
decrease the level of service for that product.
