61) From the perspective of economic theory, property rights are
A) human rights.
B) just as important as human rights.
C) less important than human rights.
D) more important than human rights.
E) usually in conflict with human rights.
62) Legal restrictions on competition, such as the grant of patent privileges to inventors,
A) destroy property rights.
B) expand property rights.
C) both destroy and expand property rights.
D) neither destroy nor expand property rights because patents are granted by the U.S.
Constitution.
63) Copyrights, which grant special privileges to artists, musicians, and writers
A) destroy property rights.
B) expand property rights.
C) neither destroy nor expand property rights because they are part of the Bill of Rights.
64) Interest is not the price of money, which can be seen when interest rates rise rapidly in an
economy where
A) barter exchange displaces money exchange.
B) people lose interest in money.
C) the demand for money increases rapidly.
D) the supply of money increases rapidly.
65) Is the stock of a corporation with an excellent earnings record likely to be a better buy than
the stock of a corporation doing very badly?
A) No, because the price of each stock will reflect differing situations.
B) Only if their different earnings records have persisted for several years.
C) Yes, because stocks with large dividend returns to owners are always good buys.
D) Yes, because the future is more likely to resemble the past than to differ from it in any
systematic way.
66) If people expect to have the profits from correct decisions confiscated but do not expect to be
compensated for the losses from incorrect decisions, they will
A) attempt to maximize risk.
B) only make choices when the outcomes are absolutely certain.
C) try to do what most others are doing.
D) undertake longer-range projects more frequently.
67) Generally, any human decision is
A) speculative.
B) perfectly informed.
C) irrational at its base.
D) good.
68) Because everybody lives under uncertainty, everybody is
A) less than perfectly informed.
B) ignorant of something.
C) a speculator.
D) all of the above.
E) none of the above.
69) In the economic way of thing, speculation could be effectively abolished if society could
abolish
A) money.
B) greed.
C) profit seeking.
D) private property rights.
E) uncertainty.
70) Fill in the blank: ________ leads to speculation.
A) Love
B) Uncertainty
C) Greed
D) Money
E) Sin
71) In the economic way of thinking, speculation can only occur
A) in a capitalist economy.
B) in a society where time-travel is possible.
C) under uncertainty.
D) under perfect information.
E) in an underground or illegal market system.
72) Of the following four motorists, who is speculating?
A) The one driving on empty, looking for the best gasoline price in town
B) The one who fills his gasoline tank believing he has found the lowest gas price around
C) The one who fills his gasoline tank on news Iraq has once again invaded Kuwait
D) All of the above.
E) None of the above.
73) Who among the following is speculating?
A) The senior citizen who decides to get a flu shot in November
B) The Midwesterner who puts fuel-line antifreeze in the tank on news of a deep freeze
C) The college work-study student who gambles his pay at the local casino
D) All of the above.
E) None of the above.
74) Of the following cancer patients, who is speculating?
A) The one who follows their doctor’s advice and elects chemotherapy
B) The one who goes against their doctor’s advice and rejects chemotherapy
C) The one who gets a second opinion, but not a third opinion
D) All of the above.
E) None of the above.
75) Who among the following is speculating?
A) The economics department that offers its first online principles course
B) The bookstore that buys back the Math 101 textbooks without confirmation that the
department definitely plans to adopt it again next semester
C) The resident hall advisor who purchases party favors for the end-of-semester bash
D) All of the above.
E) B and C above.
76) Why would a speculator purchase 1,000 shares of XYZ.COM stock at a price ten times
greater than its initial public offering price?
A) They expect the price to soon fall.
B) They expect to be able to sell it at a higher price.
C) They must think the company will sustain long-run profits.
D) They failed to realize the importance of economizing in their portfolio allocation.
77) Spot market is to futures market as
A) rice is to beans.
B) today is to tomorrow.
C) squares are to circles.
D) quarters are to dollars.
78) We all behave as speculators in our economic transactions
A) because everyone likes to gamble.
B) because we all act in the hope of benefits from a correct anticipation of future events.
C) unless we never buy on credit.
D) unless we use the services of middlemen.
79) We all use the services of speculators as information in reaching our own economic
decisions
A) because speculators are aggressive about marketing the information they produce.
B) because we all use prices, which are set by bids and offers based on predictions of the future.
C) if we buy or sell commodities through an organized exchange.
D) if we play the stock market.
80) Which seller is “selling short”?
A) Colleges that require the entire term’s tuition prior to the first day of class
B) A magazine that sells you a two-year subscription
C) A major league baseball team that sells you a season ticket
D) They are all selling short.
E) None is selling short because all are reducing their risks.
81) People who “sell short” are selling goods
A) at below-market prices.
B) of poor quality.
C) to purchasers who cannot afford to pay for them.
D) they do not yet own.
E) with the expectation of buying them back again.
82) Who is “selling short”?
A) The grocer who sells a pound of apples today at a slashed price of 75 cents a peck
B) The airline requiring you to pay for your ticket two weeks in advance of the flight
C) The church that provides a free Thanksgiving dinner to the poor
D) All of the above.
83) Who is “selling short”?
A) The scientist who collects a $150,000 research grant before undertaking her research
B) The housecleaner who collects her payment at the end of the workweek
C) The firm that advertises it will meet or beat its competitor’s prices
D) The retailer who promotes a back-to-school sale two weeks before school begins
84) Which is an example of “short selling”?
A) The public high school that offers a before-school breakfast program for twenty dollars a
month, paid the first of each month
B) The public high school theater group that sells out their rendition of Grease three days before
opening night
C) The for-profit high school ring company that requires payment in full from graduating seniors
before producing the rings of their choice
D) All of the above.
85) Promoters for the Rolling Stones were clearly “short selling” when
A) they distributed their latest CD to radio stations free of charge.
B) they sold their latest CD to retailers at wholesale prices.
C) they sold the world-tour concert tickets weeks in advance.
D) they promoted the band without Bill Wyman, the original bass player.
86) A ski resort is clearly “selling short” when it
A) charges lower prices for weekday lift tickets compared to weekend lift tickets.
B) offers children and senior citizens discounts on lift tickets.
C) charges a two-for-one special on Monday nights only.
D) offers a discounted season ticket that must be purchased before the ski season opens.
87) A health club requires six-months advanced payment. A commuter railroad offers discounted
monthly tickets. What do they clearly have in common?
A) They are earning profits.
B) They are selling short.
C) They are exploiting customers.
D) They are facing financial problems.
88) Suppose a babysitter demands payment in full before the parents go out for the night. Using
the economic way of thinking, the babysitter is clearly
A) exploiting the parents.
B) exploiting the children.
C) selling short.
D) in it only for the money.
89) People who buy futures on the commodity market are
A) agreeing to accept a specified quantity in the future at whatever price prevails then.
B) agreeing to pay a price agreed upon now for future delivery of a commodity.
C) buying now and promising to deliver the commodity in the future.
D) said to be “on the spot market.”
90) A farmer who sells September corn futures at the time he plants his corn in May is
A) competing against speculators, who profit from price fluctuations.
B) increasing his risk from price fluctuations.
C) reducing his risk from price fluctuations.
D) reducing or increasing his risk from price fluctuations, depending on what subsequently
happens to the price of corn.
91) A corn-chip maker who buys September corn futures in May at the time she signs a contract
with Safeway to deliver 1000 cases of corn chips each month for the next year is
A) competing against speculators, who profit from price fluctuations.
B) increasing her risk from price fluctuations.
C) reducing her risk from price fluctuations.
D) reducing or increasing her risk from price fluctuations, depending on what subsequently
happens to the price of corn.
92) People often make economic decisions they later regret, which shows
A) they failed to acquire additional information up to the point where expected marginal benefit
equals expected marginal cost.
B) they failed to behave rationally.
C) they failed to invest as much as they ought to have invested in information.
D) none of the above.
93) Speculators who believe the world-wide demand for cocoa products is going to increase
enormously next year will cause
A) less cocoa to be consumed next year.
B) less cocoa to be consumed this year.
C) less cocoa to be produced next year.
D) less cocoa to be produced this year.
E) none of the above since speculation only affects price.
94) A speculator who incorrectly anticipates a major decline in next year’s harvest of some
agricultural commodity
A) profits at the expense of consumers.
B) profits at the expense of producers.
C) sustains losses and increase price variation from this year to next.
D) sustains losses but reduce price variation from this year to next.
95) A speculator who incorrectly anticipates the future
A) cannot inflict a loss on others because one person’s loss must be someone else’s gain.
B) incurs a personal loss but benefits everyone else.
C) inflicts a loss on others and incurs a personal loss.
D) makes a personal profit but inflicts a loss on others.
96) If the wheat harvest next summer in Canada will be much less than had been expected, there
will tend to be
A) a decrease in the price of wheat futures and an increase in the current cash price of wheat in
the US.
B) a decrease in the price of wheat futures and in the current cash price of wheat in the US.
C) an increase in the price of wheat futures and a decrease in the current cash price of wheat in
the US.
D) an increase in the price of wheat futures and in the current cash price of wheat in the US.
97) An increase in the price of wheat futures will tend to cause
A) a decrease in current wheat consumption.
B) an increase in short-selling of wheat.
C) a shortage of wheat in the future.
D) a surplus of wheat in the future.
98) Which of the following persons is hedging?
A) A commodity speculator who confines his purchases or sales to futures contracts
B) A commodity speculator who confines his market activity to the purchase of futures
C) A commodity speculator who confines his market activity to the sale of futures
D) A farmer who buys September corn futures when he plants corn in May
E) A farmer who sells September corn futures when he plants corn in May
99) Current offers to purchase or sell scarce goods take account of the wants of future
generations
A) if government intervenes to give the future a current voice.
B) if people are able to predict future prices.
C) only if people are concerned for the welfare of others yet unborn.
D) only rarely because people are predominantly selfish.
100) If freezing weather in Florida destroys a large portion of the current orange crop,
A) prices of Florida oranges will rise and quantity demanded will fall.
B) the supply of and the demand for Florida oranges will both fall.
C) the demand for Florida oranges will fall and prices will rise.
D) the supply of Florida oranges will decline but not the quantity demanded.
101) What will be the effects of a severe Florida freeze on the price of orange-juice-concentrate
futures and what will occur as a result?
A) The futures price will fall and less orange juice will be consumed currently.
B) The futures price will fall and more orange juice will be consumed currently.
C) The futures price will rise and less orange juice will be consumed currently.
D) The futures price will rise and more orange juice will be consumed currently.
102) If freezing weather destroys half of the current Florida orange crop, wealth will increase for
A) almost all Florida orange growers.
B) no Florida orange growers.
C) some Florida orange growers and all California orange growers.
D) some Florida orange growers and some California orange growers.
103) Why do few avocados rot, even though in some seasons of the year far more avocados are
harvested than in other seasons of the year?
A) Consumers realize it would be inefficient to let avocados rot.
B) Growers vary their advertising efforts with the season of the year.
C) Prices fluctuate sharply as supplies increase or decrease.
D) The taste for avocados varies proportionately to the supply.
104) Someone who sells commodity futures is
A) hedging.
B) purchasing risk.
C) selling risk.
D) simultaneously purchasing and selling risk.
E) not necessarily doing any of the above.
105) People who buy futures on the commodity market are
A) increasing, not reducing, their personal risk.
B) reducing, not increasing, their personal risk.
C) either reducing or increasing their personal risk, depending on the circumstances.
D) creating added risk for others in society.
E) showing they are essentially indifferent to risk.
106) Commodity speculators persuade people to start economizing in their consumption of a
good as soon as the speculators foresee an increased future scarcity by causing
A) futures prices, expected future prices, and current prices to fall.
B) futures prices, expected future prices, and current prices to rise.
C) futures prices and expected future prices to fall and current prices to rise.
D) futures prices to rise, expected future prices to fall, and current prices to rise.
E) futures prices and expected future prices to rise and current prices to fall.
107) Speculators who expect a corn harvest next fall much larger than anyone now anticipates
will
A) lower current corn prices and raise September prices above what they would be in the absence
of the speculators.
B) lower current corn prices and lower September prices below what they would be in the
absence of the speculators.
C) raise current corn prices and lower September prices below what they would be in the absence
of the speculators.
D) raise current corn prices and raise September prices above what they would be in the absence
of the speculators.
E) raise the expected September price of corn.
108) A commodity speculator who thinks next fall’s corn harvest will actually be much larger
than most people now anticipate will want to
A) buy corn now for sale in September.
B) buy September corn futures.
C) buy land suitable for growing corn.
D) sell September corn futures.
E) sell corn in September from stocks accumulated between now and September.
109) Speculators believing cocoa prices are going to be higher next year will
A) buy cocoa futures, cause the expected future price of cocoa to fall, and induce some
additional cocoa to be stored for future consumption.
B) buy cocoa futures, cause the expected future price of cocoa to rise, and induce some
additional cocoa to be stored for future consumption.
C) sell cocoa futures, cause the expected future price of cocoa to fall, and induce some additional
cocoa to be stored for future consumption.
D) sell cocoa futures, cause the expected future price of cocoa to rise, and induce some
additional cocoa to be stored for future consumption.
E) sell cocoa futures, cause the expected future price of cocoa to fall, and induce greater current
consumption of cocoa.
110) In May, Jones thinks the upcoming summer’s corn crop will be much lower, and the
November corn price will be much higher than most people expect. To act on his belief, Jones
would
A) sell November corn futures.
B) buy November corn futures.
C) simultaneously buy and sell November corn futures.
D) profit only by waiting to see if his original conclusion was correct.
111) Fill in the blanks: Hundreds of speculators conclude in May that the coming summer’s corn
crop will be much lower and that the November corn price will be consequently much higher
than most people expect. When they act on their beliefs in the futures market, they would strive
to ________ corn futures, which would tend to ________ the price of corn futures.
A) sell; reduce
B) sell; raise
C) buy, reduce
D) buy; raise
112) Fill in the blanks: If you are informed copper prices will fall in the next few months, you
should ________ copper futures. But if that information becomes common knowledge, others
will do the same thing, and the price of copper futures will ________.
A) buy; rise
B) sell; rise
C) buy; fall
D) sell; fall
113) Fill in the blanks: If you are informed orange juice concentrate prices will rise in the next
few months, you should ________ orange juice concentrate futures. But if that information
becomes common knowledge, others will do the same thing, and the price of orange juice
concentrate futures will ________.
A) buy; rise
B) sell; rise
C) buy; fall
D) sell; fall
114) Fill in the blanks: If a political scientist believes Brazil is on the brink of civil unrest, which
will significantly reduce next year’s coffee supply, he should ________ coffee futures. Other
things constant, he is more likely to profit from his decision when ________ people are aware of
the possibility of the civil unrest.
A) sell; fewer
B) buy; fewer
C) sell; more
D) buy; more
115) Fill in the blanks: If a meteorologist discovers a new warming pattern is developing, and the
new pattern will create a much larger-than-expected soybean harvest, she should ________
soybean futures. Other things constant, she is more likely to profit from her decision when
________ people are aware of the warming pattern and its consequences.
A) buy; fewer
B) sell; fewer
C) sell; more
D) buy; more