Question 1

Which of the following is an example of countervailing power at work?

Accepted Answer

A)  The government monopolizes the United States Postal Service. 
B)  Ford and General Motors join forces to raise prices. 
C)  Compaq and IBM merge. 
D)  Microsoft lowers price below cost to drive rivals out of business. 
E)  Big business is met across the bargaining table by big labor. 
A)  The government monopolizes the United States Postal Service. 
B)  Ford and General Motors join forces to raise prices. 
C)  Compaq and IBM merge. 
D)  Microsoft lowers price below cost to drive rivals out of business. 
E)  Big business is met across the bargaining table by big labor.

Question 2

Antitrust problems rarely appear in competitive markets.

Accepted Answer

A) True 
 B)False

Question 3

When regulating a firm, setting price equal to marginal cost does not necessarily requireproviding a subsidy if

Accepted Answer

A)  it always requires providing a subsidy 
B)  ATC is always falling 
C)  MC is always falling 
D)  variable costs are covered 
E)  ATC is U-shaped 
A)  it always requires providing a subsidy 
B)  ATC is always falling 
C)  MC is always falling 
D)  variable costs are covered 
E)  ATC is U-shaped

Question 4

According to the theory of creative destruction, the greatest threat to a monopolist producer of electric typewriters is likely to be

Accepted Answer

A)  government regulation 
B)  international competition 
C)  the entry of new electric typewriter producers 
D)  growth in the computer industry 
E)  stockholders demanding increased efficiency 
A)  government regulation 
B)  international competition 
C)  the entry of new electric typewriter producers 
D)  growth in the computer industry 
E)  stockholders demanding increased efficiency

Question 5

According to the text, the AT&T corporation was deregulated primarily by

Accepted Answer

A)  requiring that competing companies have access to AT&T's facilities 
B)  declaring AT&T the legitimate monopoly of telephone service in the United States 
C)  creating a special Telephone Advisory Commission 
D)  ending all government regulations regarding the domestic telephone industry 
E)  requiring AT&T to share patents with competitors 
A)  requiring that competing companies have access to AT&T's facilities 
B)  declaring AT&T the legitimate monopoly of telephone service in the United States 
C)  creating a special Telephone Advisory Commission 
D)  ending all government regulations regarding the domestic telephone industry 
E)  requiring AT&T to share patents with competitors

Question 6

Under a regulatory fair price,

Accepted Answer

A)  price is driven to zero 
B)  revenues would just be sufficient to cover costs 
C)  price is set equal to marginal revenue 
D)  profit is set at the monopoly level 
E)  revenues would be set equal to marginal cost 
A)  price is driven to zero 
B)  revenues would just be sufficient to cover costs 
C)  price is set equal to marginal revenue 
D)  profit is set at the monopoly level 
E)  revenues would be set equal to marginal cost

Question 7

At the point where a fair price is set,

Accepted Answer

A)  price = average total cost (AT
C)  
B)  price = marginal cost 
C)  price = marginal revenue 
D)  price = total cost 
E)  price = total revenue 
A)  price = average total cost (AT
C)  
B)  price = marginal cost 
C)  price = marginal revenue 
D)  price = total cost 
E)  price = total revenue

Question 8

a. What is a consent decree?
b. Why would the FTC agree to a consent decree?
c. What is the problem with consent decrees?

Accepted Answer

a. A consent decree is a negotiated sett

Question 9

Contestable markets require that there be multiple participants in the marketplace.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not part of our portfolio of antitrust acts?

Accepted Answer

A)  Sherman Act 
B)  Clayton Act 
C)  Federal Trade Commission Act 
D)  Robinson-Patman Act 
E)  Herfindahl-Hirschman Act 
A)  Sherman Act 
B)  Clayton Act 
C)  Federal Trade Commission Act 
D)  Robinson-Patman Act 
E)  Herfindahl-Hirschman Act

Question 11

If the courts apply the rule of reason criterion to a firm that dominates a market but does not engage in anticompetitive behavior, it would not find the firm to be in violation of the antitrust laws.

Accepted Answer

A) True 
 B)False

Question 12

According to the theory of creative destruction,

Accepted Answer

A)  hurricanes and tornadoes stimulate the economy 
B)  technological change destroys competitive markets 
C)  monopolies engage in self-destructive behavior 
D)  competition between industries can break a monopoly 
E)  price wars break out when new products are introduced 
A)  hurricanes and tornadoes stimulate the economy 
B)  technological change destroys competitive markets 
C)  monopolies engage in self-destructive behavior 
D)  competition between industries can break a monopoly 
E)  price wars break out when new products are introduced

Question 13

Some economists believe that high concentration within industries is _________, and weshould __________.

Accepted Answer

A)  c, d, and e 
B)  terrible; deregulate the industries 
C)  beneficial; encourage it 
D)  inevitable; learn to live with it 
E)  not inevitable; break up monopolies 
A)  c, d, and e 
B)  terrible; deregulate the industries 
C)  beneficial; encourage it 
D)  inevitable; learn to live with it 
E)  not inevitable; break up monopolies

Question 14

Arguments in favor of a laissez-faire policy concerning government's role in the economy include the

Accepted Answer

A)  need for price controls 
B)  possibility of creative destruction 
C)  gains from trade 
D)  contestable nature of markets 
E)  lack of countervailing power among the economic blocs in the economy 
A)  need for price controls 
B)  possibility of creative destruction 
C)  gains from trade 
D)  contestable nature of markets 
E)  lack of countervailing power among the economic blocs in the economy

Question 15

Paul and Maggie advertise for a babysitter. Jenny is the only one who answers the ad and she's hired. She asks for $7 per hour and gets it. She occasionally thinks of raising the rate to $10 but is afraid that Paul and Maggie will decide to advertise again. This tale is analogous to

Accepted Answer

A)  monopolistic competitive pricing 
B)  the idea of nationalization 
C)  contestable markets 
D)  laissez-faire 
E)  creative destruction 
A)  monopolistic competitive pricing 
B)  the idea of nationalization 
C)  contestable markets 
D)  laissez-faire 
E)  creative destruction

Question 16

Economists who believe that market concentration is not harmful to a country's economic well being

Accepted Answer

A)  favor laissez-faire government policies 
B)  think that markets should be regulated 
C)  think that the government should own those monopolies 
D)  like the idea of price controls 
E)  are nonexistent 
A)  favor laissez-faire government policies 
B)  think that markets should be regulated 
C)  think that the government should own those monopolies 
D)  like the idea of price controls 
E)  are nonexistent

Question 17

The theory of countervailing power provides support for a more laissez-faire approach to government regulation.

Accepted Answer

A) True 
 B)False

Question 18

Government ownership of monopoly industries is termed

Accepted Answer

A)  economic regulation 
B)  antitrust 
C)  nationalization 
D)  creative destruction 
E)  rule of reason 
A)  economic regulation 
B)  antitrust 
C)  nationalization 
D)  creative destruction 
E)  rule of reason

Question 19

The government sometimes grants a firm the exclusive right to market a good or process for a fixed period of time. This is called

Accepted Answer

A)  laissez-faire 
B)  a patent 
C)  contestable markets 
D)  economies of scale 
E)  monopolistic competition 
A)  laissez-faire 
B)  a patent 
C)  contestable markets 
D)  economies of scale 
E)  monopolistic competition

Question 20

In a fully contestable market, a monopoly firm's profits are

Accepted Answer

A)  limited to a competitive level 
B)  negative 
C)  higher than a competitive market 
D)  set by a regulatory commission 
E)  not affected by the firm's costs 
A)  limited to a competitive level 
B)  negative 
C)  higher than a competitive market 
D)  set by a regulatory commission 
E)  not affected by the firm's costs

Exam 13: Antitrust and Regulation

Which of the following is an example of countervailing power at work?

Antitrust problems rarely appear in competitive markets.

When regulating a firm, setting price equal to marginal cost does not necessarily requireproviding a subsidy if

According to the theory of creative destruction, the greatest threat to a monopolist producer of electric typewriters is likely to be

According to the text, the AT&T corporation was deregulated primarily by

Under a regulatory fair price,

At the point where a fair price is set,

a. What is a consent decree? b. Why would the FTC agree to a consent decree? c. What is the problem with consent decrees?

Contestable markets require that there be multiple participants in the marketplace.

Which of the following is not part of our portfolio of antitrust acts?

If the courts apply the rule of reason criterion to a firm that dominates a market but does not engage in anticompetitive behavior, it would not find the firm to be in violation of the antitrust laws.

According to the theory of creative destruction,

Some economists believe that high concentration within industries is _________, and weshould __________.

Arguments in favor of a laissez-faire policy concerning government's role in the economy include the

Paul and Maggie advertise for a babysitter. Jenny is the only one who answers the ad and she's hired. She asks for $7 per hour and gets it. She occasionally thinks of raising the rate to $10 but is afraid that Paul and Maggie will decide to advertise again. This tale is analogous to

Economists who believe that market concentration is not harmful to a country's economic well being

The theory of countervailing power provides support for a more laissez-faire approach to government regulation.

Government ownership of monopoly industries is termed

The government sometimes grants a firm the exclusive right to market a good or process for a fixed period of time. This is called

In a fully contestable market, a monopoly firm's profits are

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Externalities, Market Failure, and Public Choice

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters

Some economists believe that high concentration within industries is _, and weshould __.