Question 1

Which of the following amended the Clayton Act's prohibition against mergers that substantially lessen competition?

Accepted Answer

A)  Celler-Kefauver Act of 1950 
B)  Wheeler-Lea Act of 1938 
C)  Clayton Act of 1914 
D)  Sherman Act of 1890 
A)  Celler-Kefauver Act of 1950 
B)  Wheeler-Lea Act of 1938 
C)  Clayton Act of 1914 
D)  Sherman Act of 1890

Question 2

Supporters of social regulation contend that

Accepted Answer

A)  the existence of natural monopoly requires a regulatory response from government. 
B)  there is a pressing need to eliminate price-fixing in U.S. business. 
C)  higher costs are the price that must be paid for a better society. 
D)  the benefits of public ownership of businesses are greater than the costs. 
A)  the existence of natural monopoly requires a regulatory response from government. 
B)  there is a pressing need to eliminate price-fixing in U.S. business. 
C)  higher costs are the price that must be paid for a better society. 
D)  the benefits of public ownership of businesses are greater than the costs.

Question 3

Antitrust authorities are least likely to take action against

Accepted Answer

A)  conglomerate mergers. 
B)  horizontal mergers. 
C)  interlocking directorates. 
D)  price-fixing. 
A)  conglomerate mergers. 
B)  horizontal mergers. 
C)  interlocking directorates. 
D)  price-fixing.

Question 4

The Federal Trade Commission

Accepted Answer

A)  is empowered to hold public hearings to investigate unfair practices. 
B)  prohibits interlocking directorates in interstate industries. 
C)  regulates airline fares. 
D)  regulates such transportation industries as railroads and trucking. 
A)  is empowered to hold public hearings to investigate unfair practices. 
B)  prohibits interlocking directorates in interstate industries. 
C)  regulates airline fares. 
D)  regulates such transportation industries as railroads and trucking.

Question 5

Which is the most valid criticism of the regulation of natural monopolies and other firms subject to regulation by regulatory commissions?

Accepted Answer

A)  It is difficult to find enough honest people to serve on regulatory commissions. 
B)  Such regulation is unnecessary and amounts to creeping socialism. 
C)  Many members of such commissions are appointed rather than being elected. 
D)  Regulated firms may have little incentive to contain costs since they are assured a "fair" return above costs. 
A)  It is difficult to find enough honest people to serve on regulatory commissions. 
B)  Such regulation is unnecessary and amounts to creeping socialism. 
C)  Many members of such commissions are appointed rather than being elected. 
D)  Regulated firms may have little incentive to contain costs since they are assured a "fair" return above costs.

Question 6

Overall, economists believe that deregulation of industries formerly subjected to industrial regulation

Accepted Answer

A)  has been a clear failure. 
B)  is neutral in its impact on society's well-being, creating minimal net benefits at best. 
C)  has produced large net benefits for consumers and society. 
D)  has produced sizable efficiency gains in the communications industry, but not in the transportation industry (railways, trucking, airlines). 
A)  has been a clear failure. 
B)  is neutral in its impact on society's well-being, creating minimal net benefits at best. 
C)  has produced large net benefits for consumers and society. 
D)  has produced sizable efficiency gains in the communications industry, but not in the transportation industry (railways, trucking, airlines).

Question 7

Which would be an example of public ownership as a response to natural monopolies?

Accepted Answer

A)  Federal Energy Regulatory Commission 
B)  Federal Trade Commission 
C)  U.S. Food and Drug Administration 
D)  U.S. Postal Service 
A)  Federal Energy Regulatory Commission 
B)  Federal Trade Commission 
C)  U.S. Food and Drug Administration 
D)  U.S. Postal Service

Question 8

The so-called rule of reason, based on the 1920 U.S. Steel case, stipulates that a merger of two firms in an industry is

Accepted Answer

A)  illegal if the firms are large. 
B)  illegal because it increases the monopoly power of the resulting firm. 
C)  legal if there is no resulting unreasonable restraint of trade. 
D)  legal because the firm will be subject to regulatory control. 
A)  illegal if the firms are large. 
B)  illegal because it increases the monopoly power of the resulting firm. 
C)  legal if there is no resulting unreasonable restraint of trade. 
D)  legal because the firm will be subject to regulatory control.

Question 9

The Alcoa case

Accepted Answer

A)  supported the structuralist approach to antitrust. 
B)  struck down the treble damages provision of the antitrust laws. 
C)  called for federal regulation of any industry with a four-firm concentration ratio in excess of 50 percent. 
D)  decision was consistent with a behavioralist approach. 
A)  supported the structuralist approach to antitrust. 
B)  struck down the treble damages provision of the antitrust laws. 
C)  called for federal regulation of any industry with a four-firm concentration ratio in excess of 50 percent. 
D)  decision was consistent with a behavioralist approach.

Question 10

Critics of the regulation of natural monopolies contend that

Accepted Answer

A)  regulation increases the incentive of firms to lower costs. 
B)  regulated firms may use creative accounting to reduce costs, prices, and profits. 
C)  when rates of return are based on the value of real capital, an uneconomic substitution of labor for capital may occur. 
D)  the industry may "capture" or control the regulatory commission. 
A)  regulation increases the incentive of firms to lower costs. 
B)  regulated firms may use creative accounting to reduce costs, prices, and profits. 
C)  when rates of return are based on the value of real capital, an uneconomic substitution of labor for capital may occur. 
D)  the industry may "capture" or control the regulatory commission.

Question 11

The view that the antitrust laws need to be strongly enforced to prevent illegal business behaviors, monopolization of markets, and allocative inefficiency is known as the

Accepted Answer

A)  structuralist view of antitrust. 
B)  behavioralist view of antitrust. 
C)  laissez-faire perspective on antitrust. 
D)  active antitrust perspective. 
A)  structuralist view of antitrust. 
B)  behavioralist view of antitrust. 
C)  laissez-faire perspective on antitrust. 
D)  active antitrust perspective.

Question 12

The antitrust laws are based on the

Accepted Answer

A)  creative destruction view of competition. 
B)  idea that competition leads to greater economic efficiency than does a monopoly. 
C)  view that nonprice competition should be strictly regulated by government. 
D)  view that all negative externalities should be eliminated by government action. 
A)  creative destruction view of competition. 
B)  idea that competition leads to greater economic efficiency than does a monopoly. 
C)  view that nonprice competition should be strictly regulated by government. 
D)  view that all negative externalities should be eliminated by government action.

Question 13

(Consider This) According to the Consider This box on catfish and art, which of the following airlines in 2007 agreed to pay $300 million in fines for fixing fuel surcharges on passenger tickets and cargo?

Accepted Answer

A)  Korean Air and British Airlines 
B)  Qantas and Lufthansa 
C)  United Airlines and American Airlines 
D)  Virgin Atlantic and Aeroflot 
A)  Korean Air and British Airlines 
B)  Qantas and Lufthansa 
C)  United Airlines and American Airlines 
D)  Virgin Atlantic and Aeroflot

Question 14

A vertical merger involves a combining of one or more firms

Accepted Answer

A)  as the result of one firm purchasing the assets of the other. 
B)  that are operating in entirely different industries. 
C)  operating at different stages of the production process in a particular industry. 
D)  operating at the same stage of the production process. 
A)  as the result of one firm purchasing the assets of the other. 
B)  that are operating in entirely different industries. 
C)  operating at different stages of the production process in a particular industry. 
D)  operating at the same stage of the production process.

Question 15

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 1,050. The antitrust authorities will most likely

Accepted Answer

A)  ignore this merger because of the relatively small size of, and increase in, the Herfindahl index. 
B)  prevent the merger, contending that it violates the Clayton Act. 
C)  allow the merger if foreign entry to the industry is possible. 
D)  allow the merger but watch the new firm carefully for future violations of the antitrust laws. 
A)  ignore this merger because of the relatively small size of, and increase in, the Herfindahl index. 
B)  prevent the merger, contending that it violates the Clayton Act. 
C)  allow the merger if foreign entry to the industry is possible. 
D)  allow the merger but watch the new firm carefully for future violations of the antitrust laws.

Question 16

Which of the following statements is true?

Accepted Answer

A)  The active antitrust perspective believes that competitive market forces will automatically and actively reduce a firm's monopoly power in the long run. 
B)  The active antitrust perspective believes that the government should play the role of officials and umpires and enforce the rules of the competitive game. 
C)  The laissez-faire perspective views firms as players in a competitive game who will sometimes violate the rules in order to gain a huge advantage over others. 
D)  The laissez-faire perspective believes that an active enforcement of antitrust policy is the only way to reduce the monopoly power of giant firms. 
A)  The active antitrust perspective believes that competitive market forces will automatically and actively reduce a firm's monopoly power in the long run. 
B)  The active antitrust perspective believes that the government should play the role of officials and umpires and enforce the rules of the competitive game. 
C)  The laissez-faire perspective views firms as players in a competitive game who will sometimes violate the rules in order to gain a huge advantage over others. 
D)  The laissez-faire perspective believes that an active enforcement of antitrust policy is the only way to reduce the monopoly power of giant firms.

Question 17

An industry has a single firm and is found to have violated antitrust laws. The government breaks it up into two firms that will share the market equally. The Herfindahl index for this industry would change from

Accepted Answer

A)  100 to 50. 
B)  10,000 to 2,500. 
C)  100,000 to 50,000. 
D)  10,000 to 5,000. 
A)  100 to 50. 
B)  10,000 to 2,500. 
C)  100,000 to 50,000. 
D)  10,000 to 5,000.

Question 18

The legislation that prohibited "every contract . . . or conspiracy, in restraint of trade and commerce" is the

Accepted Answer

A)  Federal Trade Commission Act. 
B)  Clayton Act. 
C)  Celler-Kefauver Act. 
D)  Sherman Act. 
A)  Federal Trade Commission Act. 
B)  Clayton Act. 
C)  Celler-Kefauver Act. 
D)  Sherman Act.

Question 19

Industrial regulation generally applies in cases where

Accepted Answer

A)  society would benefit if a monopoly is prevented from evolving in a certain market. 
B)  a monopoly already exists, and the government believes that society would benefit if it is dissolved. 
C)  there is an economic reason for an industry to be organized as a monopoly. 
D)  foreign competition in the form of imports is prevalent in the market. 
A)  society would benefit if a monopoly is prevented from evolving in a certain market. 
B)  a monopoly already exists, and the government believes that society would benefit if it is dissolved. 
C)  there is an economic reason for an industry to be organized as a monopoly. 
D)  foreign competition in the form of imports is prevalent in the market.

Question 20

Behavioralists believe that

Accepted Answer

A)  if four or fewer firms control more than half of the market for a product, then the Sherman Act is being violated. 
B)  industries should be judged on the basis of their price-output behavior and their technological progressiveness. 
C)  there is no evidence that any monopolistic industry has abused its market power. 
D)  all concentrations of economic power are socially undesirable. 
A)  if four or fewer firms control more than half of the market for a product, then the Sherman Act is being violated. 
B)  industries should be judged on the basis of their price-output behavior and their technological progressiveness. 
C)  there is no evidence that any monopolistic industry has abused its market power. 
D)  all concentrations of economic power are socially undesirable.

Exam 21: Antitrust Policy and Regulation

Which of the following amended the Clayton Act's prohibition against mergers that substantially lessen competition?

Supporters of social regulation contend that

Antitrust authorities are least likely to take action against

The Federal Trade Commission

Which is the most valid criticism of the regulation of natural monopolies and other firms subject to regulation by regulatory commissions?

Overall, economists believe that deregulation of industries formerly subjected to industrial regulation

Which would be an example of public ownership as a response to natural monopolies?

The so-called rule of reason, based on the 1920 U.S. Steel case, stipulates that a merger of two firms in an industry is

The Alcoa case

Critics of the regulation of natural monopolies contend that

The view that the antitrust laws need to be strongly enforced to prevent illegal business behaviors, monopolization of markets, and allocative inefficiency is known as the

The antitrust laws are based on the

(Consider This) According to the Consider This box on catfish and art, which of the following airlines in 2007 agreed to pay $300 million in fines for fixing fuel surcharges on passenger tickets and cargo?

A vertical merger involves a combining of one or more firms

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 1,050. The antitrust authorities will most likely

Which of the following statements is true?

An industry has a single firm and is found to have violated antitrust laws. The government breaks it up into two firms that will share the market equally. The Herfindahl index for this industry would change from

The legislation that prohibited "every contract . . . or conspiracy, in restraint of trade and commerce" is the

Industrial regulation generally applies in cases where

Behavioralists believe that

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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