Question 1

The great economic problem is to increase our limitedresources to satisfy as many of our infinite wants as possible.

Accepted Answer

The answer of The great economic problem is to increase...

Question 2

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

Accepted Answer

The central planning approach failed because it struggled to gather accurate information about supply and demand, and lacked the incentives for individuals and businesses to strive for efficiency and innovation.

Question 3

The true cost of a good is its money price rather than itsopportunity cost.

Accepted Answer

The statement is false. The true cost of a good includes both its money price and the opportunity cost, which is the value of the next best alternative that must be forgone in order to consume or produce the good.

Question 4

The central planning approach fails to achieve an optimalresource allocation because of information and incentivesproblems.

Accepted Answer

Central planners face difficulties in obtaining all the necessary information and incentives for individuals or firms to allocate resources efficiently. The lack of price signals in a central planning system is another factor that inhibits optimal resource allocation.

Question 5

Futures markets are used for speculation and rarely forreducing risk.

Accepted Answer

Futures markets are used both for speculation and for hedging, which is a strategy to reduce risk.

Question 6

When the prices of necessities such as gas and bottled water riseas a result of a natural disaster, it is efficient for thegovernment to impose price controls to keep suppliers from―price gouging‖ consumers.

Accepted Answer

Price controls may seem like a way to protect consumers, but they actually create unintended consequences such as shortages, black markets and reduced incentives for suppliers to provide the goods or services in high demand. Additionally, price controls can limit the ability of suppliers to cover their costs and ultimately harm the economy. It is often better to allow market forces to determine prices, even in times of crisis.

Question 7

Perhaps the biggest sign of the accuracy of the HSX market isthe sale of its data to Hollywood studios eager to improve theirpredictions about future blockbusters.

Accepted Answer

The article states that Hollywood studios have purchased HSX market data to improve their predictions, which is a strong indication of the accuracy of the market.

Question 8

Prices are incentives, prices are signals, and prices arepredictions.

Accepted Answer

Prices serve as incentives for producers to supply more goods and services, as well as for consumers to either purchase more or look for alternatives. Prices also act as signals for the allocation of resources, indicating where resources should be directed based on their relative scarcity and value. Furthermore, prices give an indication of what is likely to happen in the future, as they are based on various economic factors and can therefore be seen as a prediction of future trends.

Question 9

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

Accepted Answer

Prices play a crucial role in an economy in signaling where resources should be allocated. They communicate information about scarcity, demand, and supply, which helps producers and consumers make decisions about what to produce, consume, and invest in. In a market economy, prices serve as a guide for allocating resources efficiently and effectively.

Question 10

Sales teams have little incentive to report low sales projectionsto their CEOs-predictions markets help to overcome thisproblem.

Accepted Answer

Predictions markets allow for anonymous participation, thereby reducing the fear of negative repercussions for reporting low sales projections. This creates a more accurate prediction of future sales, which benefits both the company and the CEO.

Question 11

In a free market, there are no unsatisfied wants at theequilibrium price.

Accepted Answer

In a free market, even at the equilibrium price, there can still be unsatisfied wants due to factors like income constraints, preferences, and externalities that prevent all consumers from obtaining the goods or services they desire.

Question 12

A futures contract can make a future price certain.

Accepted Answer

A futures contract allows two parties to agree on a price for a specific commodity, currency, or financial instrument to be delivered and paid for at a specific date in the future. This can make the future price of the underlying asset more certain for both parties involved in the contract.

Question 13

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

Accepted Answer

A buy low, sell high strategy involves buying an asset at a low price and selling it at a higher price to make a profit from the difference in prices. Thus, this statement is true.

Question 14

Speculators reduce price swings for goods, increasing society'swelfare.

Accepted Answer

Speculators play an important role in reducing price volatility for goods. They buy and sell goods based on their expectation of future price movements, which helps to balance supply and demand in the market. This ultimately leads to more stable prices, which benefits both producers and consumers.

Question 15

An increase in the price of oil is also a signal to oil suppliers toinvest more in exploration, look for alternatives, and to increaserecycling.

Accepted Answer

When the price of oil increases, it becomes more profitable for oil suppliers to invest in exploration and alternative sources of energy. Additionally, it incentivizes them to find ways to increase efficiency and recycle materials in order to reduce costs.

Quiz 7: Production, Costs, and Industry Structure