Question 1

Which of the following is NOT a government response to asymmetric information?

Accepted Answer

A) Liability laws 
B) Social regulation 
C) Manufacturer's warranties 
D) Government licensing 
A) Liability laws 
B) Social regulation 
C) Manufacturer's warranties 
D) Government licensing

Question 2

One of the agencies responsible for enforcement of antitrust policy is

Accepted Answer

A) the Trust Division of Congress. 
B) the Federal Trade Commission. 
C) the World Trade Organization. 
D) the Food and Drug Administration. 
A) the Trust Division of Congress. 
B) the Federal Trade Commission. 
C) the World Trade Organization. 
D) the Food and Drug Administration.

Question 3

A major shortcoming of the Sherman Act was that

Accepted Answer

A) when it was passed, there were no violations, so the Supreme Court ruled it unnecessary. 
B) it failed to explicitly state which specific activities were illegal. 
C) violators of the Act were forced out of business. 
D) it was not enforced by the courts. 
A) when it was passed, there were no violations, so the Supreme Court ruled it unnecessary. 
B) it failed to explicitly state which specific activities were illegal. 
C) violators of the Act were forced out of business. 
D) it was not enforced by the courts.

Question 4

An agency that regulates labor markets is the

Accepted Answer

A) Equal Employment Opportunity Commission. 
B) Environmental Protection Agency. 
C) Federal Trade Commission. 
D) Consumer Product Safety Commission. 
A) Equal Employment Opportunity Commission. 
B) Environmental Protection Agency. 
C) Federal Trade Commission. 
D) Consumer Product Safety Commission.

Question 5

Regulation that is based upon the cost of providing the good or service is known as

Accepted Answer

A) rate-of-return regulation. 
B) cost-of-service regulation. 
C) social regulation. 
D) deregulation. 
A) rate-of-return regulation. 
B) cost-of-service regulation. 
C) social regulation. 
D) deregulation.

Question 6

When promoting average cost pricing, regulators

Accepted Answer

A) include what they consider to be a normal rate of return on investment. 
B) encourage firms to produce at the output level where price equals marginal cost. 
C) fail to consider a return to investors, so regulated firms often have a hard time raising investment funds. 
D) inflate costs so much that price ends up as large as would prevail under unregulated monopoly. 
A) include what they consider to be a normal rate of return on investment. 
B) encourage firms to produce at the output level where price equals marginal cost. 
C) fail to consider a return to investors, so regulated firms often have a hard time raising investment funds. 
D) inflate costs so much that price ends up as large as would prevail under unregulated monopoly.

Question 7

Under rate-of-return regulation, average cost pricing

Accepted Answer

A) is inflated so the firm can make economic profits. 
B) includes variable costs but not a cost for capital. 
C) includes what they consider to be a fair rate of return on investment. 
D) includes a cost for capital that generates an above normal rate of return. 
A) is inflated so the firm can make economic profits. 
B) includes variable costs but not a cost for capital. 
C) includes what they consider to be a fair rate of return on investment. 
D) includes a cost for capital that generates an above normal rate of return.

Question 8

Which of the following federal agencies is NOT engaged in social regulation?

Accepted Answer

A) Environmental Protection Agency 
B) Federal Trade Commission 
C) Food and Drug Administration 
D) Federal Deposit Insurance Corporation 
A) Environmental Protection Agency 
B) Federal Trade Commission 
C) Food and Drug Administration 
D) Federal Deposit Insurance Corporation

Question 9

When regulating a natural monopoly, average cost pricing is usually used rather than marginal cost pricing because

Accepted Answer

A) average cost pricing allows the firm to earn a normal rate of return on investment, while marginal cost pricing leads to economic losses. 
B) average cost pricing is more economically efficient than marginal cost pricing. 
C) average cost pricing leads to lower profits than marginal cost pricing. 
D) average cost pricing leads to a lower market price than marginal cost pricing. 
A) average cost pricing allows the firm to earn a normal rate of return on investment, while marginal cost pricing leads to economic losses. 
B) average cost pricing is more economically efficient than marginal cost pricing. 
C) average cost pricing leads to lower profits than marginal cost pricing. 
D) average cost pricing leads to a lower market price than marginal cost pricing.

Question 10

The potential for asymmetric information to bring about a general decline in product quality in an industry is known as the ________ problem.

Accepted Answer

A) moral hazard 
B) liability 
C) capture 
D) lemons 
A) moral hazard 
B) liability 
C) capture 
D) lemons

Question 11

Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good. Which of the following statements is true?

Accepted Answer

A) Under both the capture theory and the share-the-gains, share-the-pain theory profits will decrease. 
B) An increase in price will occur quicker in the share-the gains, share-the-pain theory than the capture theory. 
C) An increase in price will occur quicker in the capture theory than the share-the-gains, share-the-pain theory. 
D) In the capture theory there will be an increase in price but not in the share-the-gains, share-the-pain theory. 
A) Under both the capture theory and the share-the-gains, share-the-pain theory profits will decrease. 
B) An increase in price will occur quicker in the share-the gains, share-the-pain theory than the capture theory. 
C) An increase in price will occur quicker in the capture theory than the share-the-gains, share-the-pain theory. 
D) In the capture theory there will be an increase in price but not in the share-the-gains, share-the-pain theory.

Question 12

An agency that regulates product markets is the

Accepted Answer

A) Equal Employment Opportunity Commission. 
B) Environmental Protection Agency. 
C) Federal Trade Commission. 
D) Occupational Safety and Health Administration. 
A) Equal Employment Opportunity Commission. 
B) Environmental Protection Agency. 
C) Federal Trade Commission. 
D) Occupational Safety and Health Administration.

Question 13

-Refer to the above figure. From the standpoint of society, the optimal price is

Accepted Answer

A) P1 
B) P2 
C) P3 
D) P5 
A) P1 
B) P2 
C) P3 
D) P5

Question 14

The Interstate Commerce Commission (ICC)regulates railroads, barges and trucks. Suppose technical change lowers the costs of railroads. As a result, the ICC permits railroads to lower prices some but also alters the rates of barges and trucks so they get additional business. The ICC would be acting consistently with

Accepted Answer

A) the capture theory of regulation. 
B) the public interest theory of regulation. 
C) the share-the-gains, share-the-pains theory of regulation. 
D) None of the theories presented in the text since economic regulation is specific to a single industry and not to agencies that cover more than one industry. That is the province of social regulation. 
A) the capture theory of regulation. 
B) the public interest theory of regulation. 
C) the share-the-gains, share-the-pains theory of regulation. 
D) None of the theories presented in the text since economic regulation is specific to a single industry and not to agencies that cover more than one industry. That is the province of social regulation.

Question 15

It is illegal to price discriminate except in cases in which the price differences are due to actual cost differences. This situation is due to which antitrust act?

Accepted Answer

A) Clayton Act 
B) Contestable Market Act 
C) Federal Trade Commission Act 
D) Sherman Antitrust Act 
A) Clayton Act 
B) Contestable Market Act 
C) Federal Trade Commission Act 
D) Sherman Antitrust Act

Question 16

During the production process Ajax Corporation releases pollution into the air. Ajax Corporation operates in a monopolistic competitive industry. Which of the following statements addresses the pollution situation?

Accepted Answer

A) Ajax is taking advantage of asymmetric information. 
B) This is an example of a market failure and is a reason for the government to regulate the industry. 
C) The quality of the product could be improved if the amount of pollution can be reduced. 
D) This is known as the lemons problem. 
A) Ajax is taking advantage of asymmetric information. 
B) This is an example of a market failure and is a reason for the government to regulate the industry. 
C) The quality of the product could be improved if the amount of pollution can be reduced. 
D) This is known as the lemons problem.

Question 17

Regulators employ average cost pricing instead of marginal cost pricing because

Accepted Answer

A) average cost pricing is more efficient than marginal cost pricing. 
B) price must be high enough to cover all opportunity costs if the firm is to stay in business. 
C) the price is lower with average cost pricing. 
D) average cost pricing is simpler to compute than marginal cost pricing. 
A) average cost pricing is more efficient than marginal cost pricing. 
B) price must be high enough to cover all opportunity costs if the firm is to stay in business. 
C) the price is lower with average cost pricing. 
D) average cost pricing is simpler to compute than marginal cost pricing.

Question 18

Asymmetric information is

Accepted Answer

A) when a market failure occurs. 
B) an externality. 
C) when the producer has information on the product that the consumer lacks. 
D) the regulatory price for a natural monopoly. 
A) when a market failure occurs. 
B) an externality. 
C) when the producer has information on the product that the consumer lacks. 
D) the regulatory price for a natural monopoly.

Question 19

Explain the capture hypothesis.

Accepted Answer

The capture hypothesis is a theory of re

Question 20

Government policy that attempts to prevent collusion among the sellers of a product and attempts to prevent restraint of trade is known as

Accepted Answer

A) social policy. 
B) antitrust policy. 
C) inherent policy. 
D) goodwill policy. 
A) social policy. 
B) antitrust policy. 
C) inherent policy. 
D) goodwill policy.

Which of the following is NOT a government response to asymmetric information?

One of the agencies responsible for enforcement of antitrust policy is

A major shortcoming of the Sherman Act was that

An agency that regulates labor markets is the

Regulation that is based upon the cost of providing the good or service is known as

When promoting average cost pricing, regulators

Under rate-of-return regulation, average cost pricing

Which of the following federal agencies is NOT engaged in social regulation?

When regulating a natural monopoly, average cost pricing is usually used rather than marginal cost pricing because

The potential for asymmetric information to bring about a general decline in product quality in an industry is known as the ________ problem.

Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good. Which of the following statements is true?

An agency that regulates product markets is the

-Refer to the above figure. From the standpoint of society, the optimal price is

It is illegal to price discriminate except in cases in which the price differences are due to actual cost differences. This situation is due to which antitrust act?

During the production process Ajax Corporation releases pollution into the air. Ajax Corporation operates in a monopolistic competitive industry. Which of the following statements addresses the pollution situation?

Regulators employ average cost pricing instead of marginal cost pricing because

Asymmetric information is

Explain the capture hypothesis.

Government policy that attempts to prevent collusion among the sellers of a product and attempts to prevent restraint of trade is known as

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Exam 27: Regulation and Antitrust Policy in a Globalized Economy

Which of the following is NOT a government response to asymmetric information?

One of the agencies responsible for enforcement of antitrust policy is

A major shortcoming of the Sherman Act was that

An agency that regulates labor markets is the

Regulation that is based upon the cost of providing the good or service is known as

When promoting average cost pricing, regulators

Under rate-of-return regulation, average cost pricing

Which of the following federal agencies is NOT engaged in social regulation?

When regulating a natural monopoly, average cost pricing is usually used rather than marginal cost pricing because

The potential for asymmetric information to bring about a general decline in product quality in an industry is known as the ________ problem.

Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good. Which of the following statements is true?

An agency that regulates product markets is the

-Refer to the above figure. From the standpoint of society, the optimal price is

It is illegal to price discriminate except in cases in which the price differences are due to actual cost differences. This situation is due to which antitrust act?

During the production process Ajax Corporation releases pollution into the air. Ajax Corporation operates in a monopolistic competitive industry. Which of the following statements addresses the pollution situation?

Regulators employ average cost pricing instead of marginal cost pricing because

Asymmetric information is

Explain the capture hypothesis.

Government policy that attempts to prevent collusion among the sellers of a product and attempts to prevent restraint of trade is known as

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters