Question 1

Which of the following types of workers might have wages that change quickly?
A)unskilled, low-wage workers
B)union workers
C)employees of state and local governments
D)movie stars and rock stars

Accepted Answer

Movie stars and rock stars often have wages that can change quickly due to changes in popularity, market demand, and negotiation power with studios or record labels.

Question 2

Stickiness of wages
A)is unrelated to stickiness of prices.
B)lessens the stickiness of prices.
C)reinforces stickiness of prices.
D)may or may not reinforce stickiness of prices.

Accepted Answer

Stickiness of wages can reinforce stickiness of prices because if wages are sticky (i.e. they are slow to adjust to changes in demand or supply), then firms may be less likely to adjust their prices. This is because they may not want to increase prices if they cannot reduce wages, as this could harm employee morale or cause labor disputes. Therefore, stickiness of wages can contribute to stickiness of prices.

Question 3

Prices that adjust nearly on a daily basis are
A)custom prices.
B)auction prices.
C)sticky prices.
D)heavy prices.

Accepted Answer

Auction prices typically adjust frequently based on supply and demand, as buyers and sellers compete in real-time to determine the price of goods or services. Custom prices refer to negotiated prices for individual customers, while sticky prices change less frequently. There is no such thing as heavy prices.

Question 4

Which of the following is a problem with the price system that can lead to a breakdown in the coordination of economic activity?
A)The price system works silently in the background.
B)Prices can be slow to adjust.
C)Prices may be flexible.
D)all of the above

Accepted Answer

Prices that are slow to adjust can lead to a breakdown in coordination because they may no longer reflect the true supply and demand conditions of the market. This can cause imbalances in production and consumption decisions, leading to inefficient allocation of resources. The other options (A and C) do not necessarily indicate a problem with the price system that can lead to a breakdown in coordination.

Question 5

If prices are sticky
A)economic activity will be coordinated efficiently.
B)economic activity will not be coordinated efficiently.
C)prices will quickly adjust to changes in demand.
D)quantity supplied will always equal quantity demand.

Accepted Answer

Prices are considered sticky when they do not adjust to changes in supply and demand quickly. This can create market inefficiencies, such as surpluses or shortages, as quantity supplied and demanded may not always be equal. Therefore, economic activity will not be coordinated efficiently if prices are sticky.

Question 6

In modern economies
A)all prices are very flexible.
B)some prices are very flexible while others are not.
C)no prices are very flexible.
D)prices become less flexible as they increase.

Accepted Answer

In modern economies, some prices are very flexible while others are not. For example, prices for goods and services in competitive markets may change rapidly in response to changes in supply and demand. On the other hand, wages and salaries may be less flexible due to contracts, regulations, or social norms.

Question 7

Recessions occur because of
A)real adverse shocks to the economy.
B)shocks to technology.
C)difficulties in coordinating economic affairs.
D)all of the above

Accepted Answer

Recessions typically occur because of a combination of factors such as real adverse shocks to the economy like natural disasters, geopolitical events, and economic meltdowns, shocks to technology like automation, and difficulties in coordinating economic affairs such as fiscal policies, monetary policies, and global economic interdependence. Therefore, option D, all of the above, is the best choice.

Question 8

Suppose the demand for hamburgers increases. In the short run, firms that produce hamburgers will experience a rise in prices, which will induce them to
A)decrease production and decrease the number of workers.
B)increase production and increase the number of workers.
C)decrease production and increase the number of workers.
D)increase production and decrease the number of workers.

Accepted Answer

In the short run, firms that produce hamburgers will increase production and hire more workers to meet the increased demand for hamburgers. This is because firms have limited capacity to increase production in the short run due to fixed inputs such as equipment and facilities. Therefore, the only way to increase output is by hiring more workers and operating the equipment more intensively. As a result of increased production, firms may experience economies of scale, leading to lower costs and eventually lower prices in the long run.

Question 9

The economic theory that emphasizes the role of difficulties in coordinating economic affairs as a cause of economic fluctuations is known as
A)Keynesian economics.
B)investment cycle theory.
C)real business cycle theory.
D)technology shock theory.

Accepted Answer

The answer of The economic theory that emphasizes the role...

Question 10

Prices for fresh fruit, vegetables and other food products are examples of
A)custom prices.
B)auction prices.
C)sticky prices.
D)temporary prices.

Accepted Answer

Auction prices are a fitting description for the prices of fresh fruit, vegetables, and other food products because these items are often sold in markets where prices can fluctuate frequently based on supply and demand, similar to an auction.

Question 11

The mechanism that normally coordinates what goes on in an economy is the
A)government.
B)price system.
C)stock market.
D)Federal Reserve.

Accepted Answer

The price system, also known as the market mechanism, is the primary coordination mechanism in a market economy. Prices serve as signals to both producers and consumers about the availability and demand of goods and services, which helps allocate resources efficiently. While government, the stock market, and the Federal Reserve can all play a role in an economy, they typically function within the framework set by the price system.

Question 12

Workers whose wages tend to adjust slowly include all of the following EXCEPT
A)union workers.
B)unskilled, low wage workers.
C)those with long-term contracts.
D)movie stars, professional athletes, and rock stars.

Accepted Answer

Movie stars, professional athletes, and rock stars are not typically considered to be "workers" in the sense that their wages are not determined by traditional employment relationships. Their compensation is often negotiated through individual contracts and is based on various factors such as their popularity, talent, and market demand. As a result, their wages may adjust quickly or slowly depending on these factors rather than the typical market forces that affect most workers.

Question 13

Prices that adjust slowly are
A)custom prices.
B)auction prices.
C)flexible prices.
D)heavy prices.

Accepted Answer

Prices that adjust slowly are often referred to as "custom prices." This term implies that the prices are tailored or negotiated for specific situations or customers, and thus, may not change rapidly in response to market conditions.

Question 14

Prices for industrial commodities such as steel rods or machine tools are
A)heavy prices.
B)sticky prices.
C)auction prices.
D)custom prices.

Accepted Answer

The answer of Prices for industrial commodities such as steel...

Question 15

Workers often have _______ contracts and so their wages are _______.
A)long-term; flexible
B)long-term; sticky
C)short-term; sticky
D)short-term; flexible

Accepted Answer

The answer of Workers often have _______ contracts and so...

Question 16

Real business cycle theory emphasizes the role of
A)demand shocks as a cause of economic fluctuations.
B)technology shocks as a cause of economic fluctuations.
C)shocks to the money supply as a cause of economic fluctuations.
D)government spending as a cause of economic fluctuations.

Accepted Answer

Real business cycle theory emphasizes the role of technology shocks as a cause of economic fluctuations. This theory suggests that fluctuations in productivity and technology can cause changes in output and employment. It highlights the importance of supply-side factors in explaining business cycles, rather than demand-side factors or government policies.

Question 17

Suppose the demand for hot dogs decreases. In the short run, firms that produce hot dogs will experience a fall in prices, which will induce them to
A)increase production and increase the number of workers.
B)decrease production and increase the number of workers.
C)decrease production and reduce the number of workers.
D)increase production and reduce the number of workers.

Accepted Answer

A decrease in demand for hot dogs will lead to a surplus and a fall in prices. In the short run, firms will decrease production and reduce the number of workers to cut costs and avoid losses. Only in the long run, if the decrease in demand is permanent, firms may exit the market, and the industry will shrink.

Question 18

In which market would the price be least likely to be ʺsticky?ʺ
A)refrigerators
B)steel rods
C)fresh fruit
D)trucks

Accepted Answer

One reason for price stickiness is the difficulty in adjusting prices quickly due to changing market conditions. Fresh fruit has a short shelf life and is subject to fluctuations in supply and demand, making it a more volatile market where prices may change more frequently and be less likely to be sticky.

Question 19

The economyʹs ability to coordinate economic activity is hindered by
A)sticky wages causing sticky prices.
B)auction prices.
C)workers whose wages change quickly.
D)all of the above

Accepted Answer

Sticky wages causing sticky prices can cause inefficiencies in markets due to difficulty in adjusting to changes in supply and demand. Auction prices and workers whose wages change quickly do not necessarily hinder the economy's ability to coordinate economic activity.

Question 20

Which of the following is a problem with the price system that can lead to fluctuations in output?
A)The price system works silently in the background.
B)Prices can be slow to adjust.
C)Prices may be flexible.
D)all of the above

Accepted Answer

Prices can be slow to adjust, which can lead to fluctuations in output as suppliers may continue to produce at a certain quantity even if demand has shifted. The other choices are not necessarily problems with the price system that directly lead to fluctuations in output.

Quiz 14: Aggregate Demand and Aggregate Supply

Which of the following types of workers might have wages that change quickly?

Stickiness of wages

Prices that adjust nearly on a daily basis are

Which of the following is a problem with the price system that can lead to a breakdown in the coordination of economic activity?

If prices are sticky

In modern economies

Recessions occur because of

Suppose the demand for hamburgers increases. In the short run, firms that produce hamburgers will experience a rise in prices, which will induce them to

The economic theory that emphasizes the role of difficulties in coordinating economic affairs as a cause of economic fluctuations is known as

Prices for fresh fruit, vegetables and other food products are examples of

The mechanism that normally coordinates what goes on in an economy is the

Workers whose wages tend to adjust slowly include all of the following EXCEPT

Prices that adjust slowly are

Prices for industrial commodities such as steel rods or machine tools are

Workers often have _ contracts and so their wages are _.

Real business cycle theory emphasizes the role of

Suppose the demand for hot dogs decreases. In the short run, firms that produce hot dogs will experience a fall in prices, which will induce them to

In which market would the price be least likely to be ʺsticky?ʺ

The economyʹs ability to coordinate economic activity is hindered by

Which of the following is a problem with the price system that can lead to fluctuations in output?