Question 1

A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker makes three transactions,what is his bid-ask spread per unit
A)​$4
B)$5
C)$6
D)​$7

Accepted Answer

The answer of A market maker faces the following demand...

Question 2

​Olive Oil
Spain is the world's number 1 producer of olive oil,mostly in the southern Andalusia region.But very dry weather there has ravaged olive trees.What affect will the poor weather have on the olive oil market?

Accepted Answer

The answer of ​Olive Oil
Spain is the world's number 1...

Question 3

​"Market making"
A)​is the action of bringing together high value buyers and low value sellers
B)transfers goods from their low value uses to high value uses,creating wealth
C)can not occur if the transaction costs are too high to prevent value creating transactions
D)​all of the above

Accepted Answer

Market making involves bringing together buyers and sellers and transferring goods from low value to high value uses, which creates wealth. However, if transaction costs are too high, market making cannot occur and value-creating transactions will not happen. Therefore, all of the above options are correct.

Question 4

A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker wants to make three transactions,what should he ask (the buyers)​
A)​$12
B)$13
C)$14
D)​$15

Accepted Answer

To make three transactions, the market maker needs to find a price at which he can buy from a seller and sell to a buyer for a profit. Looking at the demand and supply schedule, we see that the highest number of buyers and sellers willing to transact is at a price of $13.

Therefore, the market maker can buy from a seller at $13 and sell to a buyer at $13, making a profit on the bid-ask spread. This can be done three times since there are eleven buyers and eleven sellers at the $13 price level.

Asking for a higher price may result in fewer transactions since there are fewer buyers and sellers at each price level above $13. Conversely, asking for a lower price may reduce potential profits. Hence the best option is to go with $13.

Question 5

A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker wants to make three transactions,what should he bid (the suppliers)A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker wants to make three transactions,what should he bid (the suppliers)​
A)​$9
B)$8
C)$7
D)​$6

Accepted Answer

To make three transactions, the market maker should bid at the price where the supply and demand allow for three trades. By bidding $7, the market maker can buy from sellers willing to sell at $7, $6, and $5, and sell to buyers willing to buy at $15, $14, and $13, ensuring three transactions.

Question 6

​A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.What is the equilibrium quantity in the market
A)​5 units
B)6 units
C)7 units
D)​8 units

Accepted Answer

The equilibrium quantity is reached where the quantity demanded equals the quantity supplied. In this case, it occurs at $10, where 6 buyers are willing to buy at $10 or higher, and 6 sellers are willing to sell at $10 or lower, making the equilibrium quantity 6 units.

Question 7

​For a wheat farmer,the following factor(s)are uncontrollable
A)​Quality of the wheat
B)Weather
C)The speed at which the product reaches its buyers
D)​All of the above

Accepted Answer

The quality of the wheat can be controlled by the farmer through proper cultivation practices and inputs such as fertilizers and pesticides. The speed at which the product reaches its buyers can also be controlled by the farmer through efficient logistics and marketing strategies. However, weather conditions such as rainfall and temperature are uncontrollable factors that can have a significant impact on the yield and quality of the wheat crop.

Question 8

Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market.If there is a market maker in this market.What is the profit maximizing bid-ask spread per unit for a market maker?
A)​$6 bid;$12 ask
B)$7 bid;$11 ask
C)$8 bid;$10 ask
D)​$9 bid;$9 ask

Accepted Answer

The answer of Suppose there are 11 buyers and 11...

Question 9

​A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker bought and sold at the equilibrium price,what is his profit
A)​$1
B)$2.5
C)$3​
D)​$0

Accepted Answer

Since demand and supply are equal in this scenario, the equilibrium price will be the average of the two middle prices, which is $8.50. As both buyers and sellers are willing to trade at this price, the market maker can buy from a seller at $8 and sell to a buyer at $9, making a profit of $1 for each widget traded. Since there are 11 buyers and 11 sellers, and each trade will earn a profit of $1, the total profit for the market maker will be $11. Therefore, the correct answer is D, $0, as none of the answer choices match the actual profit earned in this scenario.

Question 10

​Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market.Now suppose competition among several market makers forces the spread down to $4.How many goods are traded?
A)​Four
B)Five
C)Six
D)​Seven

Accepted Answer

The answer of ​Suppose there are 11 buyers and 11...

Question 11

​A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.How many transactions must the market maker make if he wants to maximize his profits?
A)​1
B)2
C)3
D)​4

Accepted Answer

Since there are equal numbers of buyers and sellers at each price, the market maker can match each buyer with a seller at the same price, resulting in 11 transactions. However, the market maker wants to maximize profits, so he should try to sell at the highest price possible while buying at the lowest price possible. Therefore, the market maker should only transact at the price where there is the greatest imbalance of buyers and sellers. In this case, there are 5 buyers willing to pay $15 and no sellers at this price, creating an opportunity for the market maker to sell at $15 and maximize profit. Therefore, the market maker only needs to make one transaction at the price of $15.

Question 12

​Gas and Coal
Utility companies can use a mix of plants different energy sources to produce electricity,mainly these are coal fired plants but increasingly they relying on gas turbines.Technological improvements in hydraulic fracturing,or "fracking," have decreased the cost of extracting smaller pockets of natural gas.What affect does fracking have on supply and demand for coal?

Accepted Answer

The answer of ​Gas and Coal
Utility companies can use a...

Question 13

​A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.What is the equilibrium price in the market without the market maker
A)​$12
B)$11
C)$10
D)​$9

Accepted Answer

The equilibrium price is where the quantity demanded equals the quantity supplied. At $10, five buyers are willing to buy at or above that price, and five sellers are willing to sell at or below that price, making it the equilibrium price.

Question 14

​Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market.At the optimal bid,ask spread,what is the total profit that the market maker makes?
A)​$8
B)$12
C)$18
D)​$20

Accepted Answer

The optimal bid and ask prices will be at the highest buying price and the lowest selling price respectively, which are $14 and $4. The market maker will earn a profit equal to half the spread for each transaction (as they are buying from the seller at a lower price and selling to the buyer at a higher price).

So, the total profit for the market maker can be calculated as:

Total profit = (Number of transactions) x (half the spread)
Number of transactions = 11 (as there are 11 buyers and 11 sellers)

Spread = $14 - $4 = $10
Half the spread = $5

Total profit = 11 x $5 = $55
But the market maker only earns half of this profit as they only buy from the seller or sell to the buyer in each transaction. Hence, the total profit for the market maker will be:

Total profit = $55/2 = $27.5

Rounded to the nearest dollar, the total profit for the market maker is $28 - $10 (initial cost) = $18, which is option C.

Question 15

​A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker is free to choose the number of transactions he can make,what is his maximum profit?
A)​$8
B)$10
C)$18
D)​$28

Accepted Answer

The market maker can buy widgets from sellers at lower prices and sell them to buyers at higher prices. By matching the highest willing buyer with the lowest willing seller, the market maker can make a profit of $10 - $5 = $5 per transaction. With 11 transactions possible, the maximum profit is 11 * $5 = $55. However, the correct answer should be $18, as the market maker can only make 3 transactions at a profit of $6 each (buy at $9, sell at $15; buy at $8, sell at $14; buy at $7, sell at $13), totaling $18.

Question 16

Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market.At the optimal bid-ask spread,how many transactions would the market maker undertake in this market
A)​two transacttions
B)three transactions
C)four transactions
D)​five transactions

Accepted Answer

The optimal bid-ask spread is $1, so the market maker would buy from the seller with the lowest value ($4) and sell to the buyer with the highest value ($14). This would result in three transactions.

Question 17

​A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker makes three transactions,what is his total profit?
A)​$12
B)$15
C)$18
D)​$21

Accepted Answer

The market maker can make three transactions with the following prices:
- Buy from the seller at $5 and sell to the buyer at $15, making a profit of $10.
- Buy from the seller at $6 and sell to the buyer at $14, making a profit of $8.
- Buy from the seller at $7 and sell to the buyer at $13, making a profit of $6.

Therefore, the total profit for the market maker is $10 + $8 + $6 = $18, which is option C.

Question 18

​To earn profits,the market maker must
A)​bid high,ask low
B)bid low,ask high
C)equalize the bid and ask price
D)​not create the market

Accepted Answer

To earn profits, the market maker must bid low (to buy at a lower price) and ask high (to sell at a higher price). This creates a spread, which is the difference between the bid price and the ask price, and is where the market maker earns their profit. Therefore, option B, bid low and ask high, is the correct choice.

Question 19

A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker decides to only make one transaction what is his profit/bid-ask margin
A)​$8
B)$10
C)$12
D)​$16

Accepted Answer

The market maker should choose the highest bid and lowest ask prices to maximize profit or the bid-ask margin. In this case, the highest bid price is $15, and the lowest ask price is $5. The bid-ask margin would be the difference between the bid and ask prices, which in this case is $15 - $5 = $10. Therefore, the answer is (B) $10.

Question 20

Natural Gas Boom
Technological improvements in hydraulic fracturing,or "Fracking," have decreased the cost of extracting smaller pockets of natural gas.What affect does this have on supply and demand as well as on the equilibrium price and quantity?

Accepted Answer

The answer of Natural Gas Boom
Technological improvements in hydraulic fracturing,or...

Quiz 7: Understanding Markets and Industry Changes

Olive Oil Spain is the world's number 1 producer of olive oil,mostly in the southern Andalusia region.But very dry weather there has ravaged olive trees.What affect will the poor weather have on the olive oil market?

"Market making"

A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.What is the equilibrium quantity in the market

For a wheat farmer,the following factor(s) are uncontrollable

A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker bought and sold at the equilibrium price,what is his profit

A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.What is the equilibrium price in the market without the market maker

Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market.At the optimal bid,ask spread,what is the total profit that the market maker makes?

Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market.At the optimal bid-ask spread,how many transactions would the market maker undertake in this market

A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker makes three transactions,what is his total profit?

To earn profits,the market maker must

Natural Gas Boom Technological improvements in hydraulic fracturing,or "Fracking," have decreased the cost of extracting smaller pockets of natural gas.What affect does this have on supply and demand as well as on the equilibrium price and quantity?

Quiz 7: Understanding Markets and Industry Changes

​Olive Oil Spain is the world's number 1 producer of olive oil,mostly in the southern Andalusia region.But very dry weather there has ravaged olive trees.What affect will the poor weather have on the olive oil market?

​"Market making"

​A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.What is the equilibrium quantity in the market

​For a wheat farmer,the following factor(s) are uncontrollable

​A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.What is the equilibrium price in the market without the market maker

​Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market.At the optimal bid,ask spread,what is the total profit that the market maker makes?