Question 1

The price of coffee goes up, and Stella cuts back on her coffee consumption. This illustrates price functioning as

Accepted Answer

The fact that Stella cut back on her coffee consumption shows that the price increase acted as an incentive for her to consume less coffee. This demonstrates the role of price as a motivator for behavior change.

Question 2

Chantelle grows tomatoes and sells them at the farmer's market. Because the price of tomatoes rises, she is encouraged to grow and sell more. This is an example of price functioning as

Accepted Answer

Price is serving as an incentive in this scenario as the increase in price encourages Chantelle to produce and sell more tomatoes. The higher price signals to her that there is greater demand for tomatoes and thus, creating more supply can lead to higher profits.

Question 3

Giselle buys doughnuts for breakfast once a week. The price of doughnuts falls, and the lower price induces her to buy doughnuts twice a week. This is an example of price functioning as

Accepted Answer

The lower price of the doughnuts is serving as an incentive for Giselle to buy them more frequently.

Question 4

Harvey pays $8 to skate at the indoor ice rink once a month. The price rises to $10, and Harvey starts skating once every six weeks. This is an example of price functioning as

Accepted Answer

The price increase serves as an incentive for Harvey to change his behavior, reducing the frequency of his skating sessions.

Question 5

When sellers and buyers adjust supply and demand in response to a price change signal, price is functioning as

Accepted Answer

The answer of When sellers and buyers adjust supply and...

Question 6

Price is functioning as an incentive when a price change

Accepted Answer

When there is a price change, it affects the behavior of both buyers and sellers. Buyers may choose to buy more or less of a good depending on whether the price has increased or decreased, while sellers may choose to produce more or less of a good depending on whether the price has increased or decreased. Therefore, price acts as an incentive for both buyers and sellers to change their behavior.

Question 7

When price functions as an incentive, it

Accepted Answer

When prices change, buyers and sellers may respond by adjusting the quantity they are willing to buy or sell. For example, if the price of a good increases, some buyers may decide to purchase less of it, while some sellers may decide to produce more of it to take advantage of the higher price. This illustrates how price serves as an incentive for economic actors to change their behavior.

Question 8

Aree has a smoothie business. The average price of smoothies in her city rises, and this encourages Aree to increase the price and the quantity that she produces. Her response to the price increase is an example of price functioning as

Accepted Answer

Aree's response to the rising price of smoothies shows that price is functioning as an incentive for her to increase both the price and quantity of her product. The higher price signals to Aree that there is likely more demand for her product, and so she responds by increasing her supply to capitalize on this opportunity to make more profit.

Question 9

Jane sells bowls of noodles for $6 at her noodle shop. The average price of a bowl of noodles in the city starts rising. In response to this, Jane starts to produce more bowls of noodles and raises her price to $6.50. This is an example of price functioning as

Accepted Answer

Price functions as an incentive when it encourages producers to supply more of a good or service. In this case, the rising average price of noodles in the city incentivized Jane to produce more bowls of noodles and raise her price.

Question 10

Marta's family buys a dozen eggs each week. The price of a dozen eggs rises from $2 to $3. In response to this, Marta's family starts to buy eggs every two weeks instead of every week. This is an example of price functioning as

Accepted Answer

The rising price of eggs served as an incentive for Marta's family to change their buying behavior, indicating that price is functioning as an incentive.

Question 11

Markets whose payoffs are linked to whether an uncertain event occurs are called _____ markets.

Accepted Answer

Markets whose payoffs are linked to whether an uncertain event occurs are called prediction markets. In these markets, individuals trade assets whose value is linked to the outcome of an event, such as an election or the success of a new product launch, with the goal of making a profit. By aggregating the collective knowledge and insights of participants, prediction markets have been shown to provide highly accurate predictions about future events.

Question 12

A prediction market is a market where:

Accepted Answer

A prediction market involves participants buying and selling contracts that pay off based on the outcome of a future event. The payoffs are directly linked to the occurrence of the uncertain event, therefore making option C the correct answer. Option A may be a characteristic of a prediction market, but it is not the defining feature. Option B refers to the concept of information asymmetry, which is not necessarily related to prediction markets. Option D is an incorrect statement as prediction markets rely on information to make predictions.

Question 13

How does the accuracy of prediction markets compare to public opinion polls?

Accepted Answer

Studies have shown that prediction markets tend to provide more accurate forecasts than public opinion polls. Prediction markets rely on the collective wisdom of many individuals, who may have access to diverse information and perspectives, and are incentivized to make accurate predictions. In contrast, public opinion polls rely on a smaller sample of individuals who may not be representative of the population as a whole, and who may be subject to various biases and errors in responding to questions.

Question 14

How does price aggregate information?

Accepted Answer

Prices are determined by the forces of supply and demand in a market. The actions of many buyers and sellers impact the price, as they collectively determine the level at which they are willing to buy or sell a good or service. Thus, prices aggregate information about market conditions and the willingness of buyers and sellers to participate in the market at a given level.

Question 15

Many buyers and sellers participate in the rice market. All their decisions in the rice market lead to the market equilibrium price. This describes which function of price?

Accepted Answer

The function of price that describes the situation in the given scenario is price aggregates information, as the equilibrium price is the result of all the information and decisions made by buyers and sellers in the market.

Question 16

Prices in currency futures markets and bond markets provide

Accepted Answer

Prices in currency futures markets and bond markets are used to predict future exchange rates and inflation rates.

Question 17

As prices _____, they provide useful business intelligence.

Accepted Answer

When prices aggregate information, they reveal trends and patterns that businesses can use to make informed decisions. Creating incentives and varying randomly are also potential functions of prices, but they do not necessarily provide useful business intelligence in the same way that aggregating information does. Prices being constant is rare and not a typical scenario in most markets.

Question 18

Managers can harness market forces by setting up internal markets, which:

Accepted Answer

Internal markets are set up within a company to efficiently allocate scarce resources by buying and selling them among different departments, divisions or subsidiaries. This allows managers to harness market forces within the company to allocate resources based on supply and demand, which can lead to cost savings and improved efficiency. The other options do not accurately describe internal markets.

Question 19

When a manager sets up markets within the company to buy and sell scarce resources, these markets are called

Accepted Answer

These markets are set up within the company and are used to allocate scarce resources among the departments or business units within the organization. They are called internal markets because they are specific to the company and are not open to external parties.

Question 20

Why would a company set up internal markets?

Accepted Answer

Internal markets allow a company to allocate its resources more efficiently by creating a mechanism for departments and divisions within the company to exchange goods, services, and resources with each other. This can help prevent unnecessary duplication of efforts and ensure that resources are being used in the most productive way possible. It can also help to increase communication and collaboration within the company.

Quiz 8: Gains From Trade