Question 1

What links the flower growers in Kenya with romantic American teenagers who give flowers as gifts of affection?

Accepted Answer

Markets connect the flower growers in Kenya with the demand for flowers in the United States, including from romantic American teenagers giving flowers as gifts of affection. The growers sell their flowers on the global market to wholesalers and retailers who distribute them to consumers in the United States.

Question 2

Wearing costumes at Halloween is largely a Western custom. In China, the Halloween festivals are very different in that they involve more of the presentation of gifts and food to family members and others that have passed away. Which statement is a reasonable explanation for why the Western market for Halloween costumes might be important for Chinese firms and factories?

Accepted Answer

Chinese firms and factories can produce Halloween costumes at lower costs and export them to the Western market where there is a demand for such costumes.

Question 3

If the production of two goods uses a common input, increases in production of one good will cause:

Accepted Answer

When two goods use a common input, increasing production of one good reduces the input available for the other, decreasing its supply and increasing its price.

Question 4

A decrease in the demand for a good sold in Market A:

Accepted Answer

A decrease in demand for a good sold in Market A can have a ripple effect on other markets, even those halfway across the world. For example, if Market A is a major consumer of a certain raw material, a decrease in demand could result in lower prices for that material, which could then affect other markets that use that material. Additionally, if Market A is a major exporter of goods, a decrease in demand could lead to economic downturns that cause ripple effects throughout the global economy.

Question 5

Newly formed trade unions raise wages for workers in Country X, where cars are manufactured. The higher wages increase the costs for the car manufacturers, who then relocate to Country Y, where labor costs are lower. Car manufacturing begins to thrive in Country Y relative to Country X. Which answer BEST describes the concept highlighted by this scenario?

Accepted Answer

The scenario illustrates the concept that changes in one market (the labor market in Country X) can affect other markets (the car manufacturing industry) and people in other regions of the world (Country Y). It shows the interconnectedness of global markets and how they can be impacted by various factors. The other choices are not supported by the scenario.

Question 6

It's worthwhile to grow roses in Kenya because:

Accepted Answer

The statement mentions that growing roses in Kenya is worthwhile because the gains from growing roses in an ideal climate are greater than the costs of transporting roses around the world. This implies that the benefits of growing roses in Kenya outweigh the costs, making it a profitable venture. The other options do not provide a logical or relevant reason for why growing roses in Kenya is worthwhile.

Question 7

It is Valentine's Day in the United States, and you give your lover one dozen roses that were freshly picked 72 hours ago from the fields of Kenya. What made this gift possible?

Accepted Answer

Economic markets, specifically the global flower market, make it possible to transport freshly picked roses from Kenya to the United States within 72 hours. This involves fast and efficient transportation and logistics to ensure the flowers remain fresh and reach their destination quickly. The United Nations Director of Horticultural Operations and the Jennifer Flowers Act are not relevant to the production and transportation of roses from Kenya to the US, and tariff laws may impact the cost of the roses but do not make this gift possible.

Question 8

Rising oil prices during the 1970s shifted flower production from California to Kenya. Which of the following answers explains this shift?

Accepted Answer

Rising oil prices increased transportation and heating costs, making it more economical to grow flowers in Kenya, where the climate is naturally suitable, demonstrating how markets are interconnected.

Question 9

Both ethanol and sugar are made from sugar cane and ethanol can be used as a substitute for oil. As the price of oil increases, Brazilians shift sugar cane from sugar production to ethanol production, thereby:

Accepted Answer

As sugar cane is diverted from sugar production to ethanol production, the supply of sugar decreases, leading to an increase in the price of sugar.

Question 10

Markets are linked in unpredictable and creative ways by:

Accepted Answer

Entrepreneurs are constantly looking for ways to cut costs and improve efficiency, which can lead to unexpected connections between seemingly unrelated markets. Treaties and bureaucratic planning may facilitate trade, but they do not necessarily create these creative linkages between markets.

Question 11

Millions of producers working across the world cooperate to ensure that many more millions of consumers can have the goods and services they desire. These producers do not know each other and are not coordinated by a central agency. Their actions are directed simply by:

Accepted Answer

The statement mentions that producers are not coordinated by a central agency and their actions are directed simply by self-interest. Therefore, the best choice is self-interest. B, C, and D are not mentioned in the statement as the driving force behind the actions of the producers.

Question 12

The women in Kenya who pick roses:

Accepted Answer

The passage states that the women know that roses need to bloom a few days before February 14, but otherwise they know little about Valentine's Day. This indicates that they have some understanding of the holiday, but not a complete understanding. Therefore, option B is the best choice.

Question 13

Which factor(s) contribute to the increased speed of trade across countries?
I. profit opportunities for sellers
II. better transportation networks
III. increased cooperation among countries

Accepted Answer

All three factors mentioned (profit opportunities for sellers, better transportation networks, and increased cooperation among countries) have contributed to the increased speed of trade across countries. Profit opportunities for sellers incentivize them to find new markets and streamline their operations, while better transportation networks make it easier and faster to move goods and services around the world. Increased cooperation among countries has led to the creation of trade agreements and policies that facilitate cross-border trade and investment.

Question 14

South Africa, with large natural diamond deposits, is famous for its diamond exports. The international demand for diamonds for industrial and other purposes, such as jewelry, has led to the production of synthetic diamonds by other countries, such as the United States. Which answer BEST describes the concept highlighted in this scenario?

Accepted Answer

The scenario highlights the concept of demand and supply in a market. The international demand for diamonds has led to the production of synthetic diamonds, which provides an incentive for sellers to produce more diamonds. This, in turn, affects the price of natural diamonds as it reduces the demand for them. Therefore, the best answer is C, which states that prices provide incentives for sellers. The other options are not relevant to the scenario.

Question 15

Which example is a reasonable analogy of the interconnectedness and coordination of markets?

Accepted Answer

The World Wide Web is a good analogy because just like how different websites and webpages are interlinked and coordinated to create the internet, different markets and economies are interconnected and coordinated to create a global market system.

Question 16

Ethanol and sugar are both made from sugar cane, and ethanol can be used as a fuel substitute for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______.

Accepted Answer

As the demand for ethanol increases due to rising oil prices, more sugar cane will be used to produce ethanol rather than sugar, decreasing the supply of sugar and causing its price to increase.

Question 17

Asphalt is the refined residue from crude oil. When gasoline prices are high, oil refiners pull every last drop of gasoline out of a barrel of crude. This would imply that higher gasoline prices mean a(n):

Accepted Answer

When refiners extract more gasoline from crude oil, less asphalt is produced, leading to a reduced supply of asphalt. This reduced supply causes prices to increase. Therefore, the correct choice is D.

Question 18

Markets coordinate in a way that links buyers and sellers who rely primarily on:

Accepted Answer

Markets rely on voluntary cooperation between buyers and sellers who make undirected actions based on their own interests and preferences. There is no central management or government policies directing economic actions; instead, prices and market forces guide transactions. The benevolence and good will of the participants may play a role, but it is not the primary coordinating mechanism.

Question 19

When oil prices increased in the 1970s, sellers began to grow roses in ________ countries and sell them in ________ countries.

Accepted Answer

As roses are delicate flowers that require warm weather, it is likely that sellers would grow them in warm countries and sell them in cold countries where they are not readily available. Therefore, option D is the best choice.

Question 20

Workers in Peru collect cochineal bugs used to dye certain United States food items red. Market activities such as this one can best be described as:

Accepted Answer

Market activities are typically cooperative and voluntary, as they involve the exchange of goods and services between willing parties without central direction.

Quiz 7: The Price System