EXAM 1

Which of the following is not true with respect to buyers, sellers and market prices? a) Consumers valuing the goods the least exclude consumers that desire the good the most b) Producers valuing the goods the least exclude the producers that desire the good the most. c) The final exchange price is set between the limits defined by the maximum buying values and minimum selling values at the margin. d) As more parties enter the exchange nexus, the limits of price formation are progressively narrowed. e) In the perfect competition model there is only one possible market price.

a) Consumers valuing the goods the least exclude consumers that desire the good the most.

Which of the following is true with respect to the "Law of Demand?" a) A positive relationship exists between the relative price of the good and the quantity demanded. b) An inverse relationship exists between the relative price of the good and the quantity demanded. c) A positive relationship exists between the relative price of the good and the quantity supplied. d) An inverse relationship exists between the relative price of the good and the quantity supplied e) The demand curve slopes downward because of diminishing opportunity costs.

b) An inverse relationship exists between the relative price of the good and the quantity demanded.

Changes in quantity supplied or quantity demanded (as opposed to changes in supply or demand) arise because of: a) Changes in tastes or values b) Changes in relative price c) changes in the quality of substitutes d) changes in the quality of complements e) none of the above

b) Changes in relative price

In "Rinkonomics" by Dan Klein, it is asserted that the market much like a roller ring works without the need to guidance because... a) Behind the scenes guidance is provided. b) Like roller skaters market participants benefit each other to their own self-interest. c) The article actually contrasted roller rinks and markets, while the author agrees that roller rinks do not need planners, he argues do to the market's complex and chaotic nature they require government control. d) Skaters stay in isolated areas much like how market participants must isolate themselves from each other to avoid harm. e) None of the above.

b) Like roller skaters market participants benefit each other due solely to their own self-interest.

The "Just Price Doctrine" (the attempt to determine the ethical content of market prices) failed as a theory of price formation because: a) Neoclassical economics replaced considerations of justice and equality. b) The Scholastics were essentially using normative theoretical analysis to explain market prices when a positive theory was needed. c) The self-interest of real world actors prohibited it from being applied in a practical context. d) Market prices are the result of exchanging equal values; therefore every price is "just" since equality implies justice. e) none of the above are correct

b) The Scholastics were essentially using normative theoretical analysis to explain market prices when a positive theory was needed.

Which of the following is not true with respect to value and economic goods? a) The value of goods are imputed from human needs. b) The magnitude of importance of different ends are equal. c) The magnitude of importance for goods are unequally imputed. d) The value attached to any given unit of the good is entirely dependent on the least important need satisfied with the available quantities. e) Human values are subjective and marginal.

b) The magnitude of importance of different ends are equal

Which of the following did mercantilists NOT believe? a) the economy should be planned by the government b) trade benefits both parties c) exchange is a zero-sum game d) the country with the most money is the richest country e) the economy can be prosperous while the mass of people are poor

b) Trade benefits both parties

According to Peter Boettke in "Morality as Cooperation" markets... a) Are always moral. b) Work better when rigorously restrained by government. c) Always exist regardless of institutional structures. d) Can only be considered moral if participants consciously aim to act in a moral fashion. e) Always normatively behave "fairly"

c) Always exist regardless of institutional structures.

The classical economists refused to accept subjective value theory because of an inherent "Paradox of Value" for water and diamonds. How did Carl Menger resolve this apparent paradox? a) By explaining that value or price is based on costs of production. b) By pointing out that these economic goods are exceptions to the theory of price. c) By explaining that value is attached at the margin. d) By explaining that price theory does not deal with either "luxury goods" such as diamonds or "necessities" such as water. e) By explaining the subjective nature of value.

c) By explaining that value is attached at the margin.

The major problem with the "Equality of Exchange" idea was that: a) Exchange is a zero-sum game, therefore, unequals cannot exchange. b) Exchange is mostly indeterminate which means the exchange cannot occur unless it is in accordance with the "Just Price Doctrine." c) It could not explain why voluntary trade would ever occur since equal values traded would leave no benefit to the trading agents. d) It could not explain why voluntary transactors were exchanging equal values the "National Interest" could not be served. e) There were no problems with the idea because modern price theory is built upon this concept.

c) It could not explain why voluntary trade would ever occur since equal values traded would leave no benefit to the trading agents.

All else held constant, an increase in the price of a(n) ________ causes ________. a) Substitute; demand for that good to decrease. b) Complement; demand for that good to increase. c) Substitute; demand for that good to increase. d) Input to its production; the market price of a good to decrease. e) Complement; quantity demanded for a good to increase.

c) Substitute; demand for that good to increase

Which of the following is not true with respect to the "structure of production" and factor pricing? a) The values of goods of higher order stages are dependent on accessing complementary goods of the same stage of production. b) The value of goods of higher order stages are dependent on the coordination of complementary goods of all higher order stages and all lower order stages of production. c) The value of lower order goods are derived from the corresponding value of higher orders. d) The value of higher order goods are derived from the corresponding value of goods of the lowest order. e) The value of generalized factors of production are not dependent on satisfying any one particular human need.

c) The value of lower order goods are derived from the corresponding value of higher orders.

An inferior good is determined as a good in which: a) When a person's income increases the demand for the good increases. b) When the price increases people demand more. c) When a person's income increases the demand for the good decreases. d) The person determines that good is worse than other goods. e) Any quality of the good is determined to be unpleasant.

c) When a person's income increases the demand for the good decreases.

Which statement below is true regarding hotdogs, Ramen Noodles and Bologna? a) Bologna and Hotdogs are normal and Ramen noodles are inferior goods. b) Bologna is inferior and the rest are normal goods c) Whether these goods are normal or inferior depends on an individual's preferences d) All of these goods are inferior for Americans because the standard of living is high relative to the rest of the world. e) All of these goods are normal.

c) Whether these goods are normal or inferior depends on an individual's preferences.

In Walter Williams' article "Greed Versus Compassion", what does he claim about the relationship between current and future generations? a) The self-interest of current generations is beneficial in the short-term, but rules must be made to ensure that they consider future generations in their decisions. b) Empirically, current generations are generally compassionate and forward-thinking enough that they make sure to conserve resources for future generations' well being. c) Private property rights matter because they allow future generations to inherit their ancestors' wealth. d) Self-interest and private property rights give financial motivations to current generations to conserve resources. e) Communal ownership structures can be designed to overcome the intergenerational problem of conservation.

d) Self-interest and private property rights give financial motivations to current generations to conserve resources.

The guiding force behind what economics call the "Invisible Hand" is a) encouraging "nudges" by government b) an unseen, mysterious historical force that economics struggles to explain c) the psychological biases of market participants d) self-interested, maximizing behavior by individuals e) benevolent, altruistic concern for the well-bing of others

d) Self-interested, maximizing behavior by individuals

Suppose the value scales for Tommy and Chuckie are given below. Chuckie owns 3 apples and Tommy owns 3 oranges. What is underlined is what they own. Tommy: 2nd first orange, 3rd second orange, 5th third orange Chuckie: 2nd first apple, 4th second apple, 5th third apple Given this information, which of the following is true? a) two acts of exchange are possible b) Chuckie will be the first trader wanting to stop exchanging. c) When trade stops, Chuckie will own 2 oranges and 1 apple, while Tommy will own 2 apples and 1 orange. d) The marginal utility of a second exchange for Chuckie is his second orange. e) Tommy values the first apple 5 times more than his third orange.

d) The marginal utility of a second exchange for Chuckie is his second orange.

Which of the following was not a feature of Classical price theory? a) objectivism in value or intrinsic value b) labor as the source of all value c) market prices of goods were created from the goods "historical cost-of-population." d) The value of higher order goods was derived from the value of lower order goods. e) An infinite regression of values.

d) The value of higher order goods was desired from the value of lower order goods.

Suppose we have 6 buyers and 7 sellers in the market for horses: Max Buying/Min Selling: $133/$112, $121/$115, $120/$116, $113/$121, $111/$122, $110/$125, Na/$131 The limits of price information are between: a) $93 and $97 b) $110 and $125 c) $133 and $112 d) $133 and $131 e) $120 and $116

e) $120 and $116

The market equilibrium price of a good varies because of: a) The cost of labor used to produce it b) The cost of raw materials used to produce it c) The producer's cost of the transportation used to deliver it. d) The consumer's cost of the effort required to purchase it. e) None of the above

e) None of the above