The purchasing power parity (PPP) theory suggests the prices of identical items will equalize internationally. An illustration that supports this theory is the fact that the price of a McDonald's Big Mac is the same around the world.
a. True
b. False
QUESTION 2The more complicated the process used to produce a good,
a. the greater are the transaction costs of organizing production through markets
b. the lower are the transaction costs of organizing production through markets
c. the less likely a firm will use administrative controls to organize the production process
d. the more likely a firm will use the market to organize the production process
e. the more likely consumers will choose to purchase the good over other alternatives in the market
QUESTION 3The purchasing power parity theory helps explain long-run trends in exchange rates, but not short-run fluctuations.
a. True
b. False
QUESTION 4Jack F. Altrades's decision whether to purchase a good from a firm or hire resources directly in the market will
a. depend, in part, on his production skill but not on his contract negotiation skill
b. depend, in part, on the opportunity cost of his time but not on his skill
c. not depend on the cost of identifying, measuring, and pricing inputs
d. not depend on the cost of negotiating contracts
e. depend, in part, on both his skill and the opportunity cost of his time
QUESTION 5A speculator in foreign exchange is a person who
a. buys foreign currency, hoping to profit by selling it at a higher exchange rate at some later date
b. earns illegal profit by manipulating foreign exchange
c. causes differences in exchange rates in different geographic markets
d. simultaneously buys large amounts of a currency in one market and sells it in another market
e. takes no risks in foreign currency exchanges
QUESTION 6Production through the firm is often more efficient than market exchange when
a. production requires many transactions among many resource owners
b. production requires few transactions between two resource owners
c. the cost of transacting business through market relations is less than the cost of undertaking the same activity within the firm
d. inputs are easily identified, measured, priced, and hired
e. the costs of determining inputs and negotiating contracts are low
QUESTION 7An arbitrageur in foreign exchange is a person who
a. buys foreign currency, hoping to profit by selling it at a higher exchange rate at some later date
b. earns illegal profit by manipulating foreign exchange
c. causes differences in exchange rates in different geographic markets
d. simultaneously buys large amounts of a currency in one market and sells it in another market
e. mediates disputes when there is no agreement on exchange rates in international currency markets
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