Deck 13: Regulation and Antitrust: The Role of Government in the Economy

Question 1

Use the following to answer questions below


-Refer to the monopoly market graph. What price would a regulatory commission typically set?

A) 20
B) 30
C) 40
D) 60

Answer 1

40

Question 2

Use the following to answer questions below


-Refer to the monopoly market graph. What price would yield the socially optimal level of output?

A) 20
B) 30
C) 40
D) 60

Answer 2

20

Question 3

Use the following to answer questions below


-Refer to the monopoly market graph. What price would the monopolist charge in the absence of regulation?

A) 20
B) 30
C) 40
D) 60

Answer 3

60

Question 4

Use the following to answer questions below :

-Refer to the graph of domestic supply and demand for Good X. Assume that the good can be imported from abroad in unlimited quantities at a price of $3. How many units of the good will be produced domestically?

A) 2
B) 4
C) 6
D) None of the above is correct.

Question 5

Use the following to answer questions below :

-Refer to the graph of domestic supply and demand for Good X. Assume that the good can be imported from abroad in unlimited quantities at a price of $3. How many units will be imported?

A) 2
B) 4
C) 6
D) None of the above is correct.

Question 6

Use the following to answer questions below :

-Refer to the graph of domestic supply and demand for Good X. Assume that the good can be imported from abroad in unlimited quantities at a price of $3. How many units will be consumed?

A) 2
B) 4
C) 6
D) None of the above is correct.

Question 7

Use the following to answer questions below :

-Refer to the graph of marginal private cost (MPC) and marginal private benefit (MPB). If production of this good gives rise to an external social cost equal to $1 per unit produced, what is the socially optimal level of output?

A) 4
B) 5
C) 6
D) 7

Question 8

Use the following to answer questions below :

-Refer to the graph of marginal private cost (MPC) and marginal private benefit (MPB). If consumption of this good gives rise to an external social cost equal to $3 per unit consumed, what is the socially optimal level of output?

A) 4
B) 5
C) 6
D) 7

Question 9

Use the following to answer questions below :

-Refer to the graph of marginal private cost (MPC) and marginal private benefit (MPB). If production of this good gives rise to an external social benefit equal to $1 per unit produced, what is the socially optimal level of output?

A) 4
B) 5
C) 6
D) 7

Question 10

Use the following to answer questions below :

-Refer to the graph of marginal private cost (MPC) and marginal private benefit (MPB). If consumption of this good gives rise to an external social benefit equal to $3 per unit consumed, what is the socially optimal level of output?

A) 4
B) 5
C) 6
D) 7

Question 11

The tendency for regulated monopolies to purchase quantities of capital that exceed the optimal amount is referred to as

A) an external diseconomy of production.
B) the Averch-Johnson effect.
C) an external economy of production.
D) conscious parallelism.

Question 12

The adoption of similar policies by oligopolists as a response to their recognized interdependence is referred to as

A) an external diseconomy of production.
B) the Averch-Johnson effect.
C) an external economy of production.
D) conscious parallelism.

Question 13

One difference between the public interest theory and the economic theory of regulation is that the former

A) asserts that regulation is a response to market failure and the latter is a response to the existence of natural monopolies and externalities.
B) asserts that regulation is a response to market failure and the latter is a response to pressure group action designed to promote the interests of regulated firms.
C) is based on qualitative analysis and the latter is based on quantitative analysis.
D) argues that regulation is inappropriate while the latter proves that it is essential.

Question 14

A firm that uses profits earned in one market to sell a product or service below its average variable cost in another market is engaged in

A) conscious parallelism.
B) predatory pricing.
C) voluntary export restraint.
D) an injunction.

Question 15

Which of the following is a device that controls imports and generates government revenue?

A) Import quotas
B) Voluntary export restraints
C) Tariffs
D) Value-added taxes

Question 16

Which one of the following types of government regulation does not limit competition and create artificial market power?

A) Licensing regulations
B) Patents
C) Copyrights
D) All of the above limit competition and create artificial market power.

Question 17

Which of the following is not a law designed to protect the consumers of products?

A) Warranty Act of 1975
B) Federal Trade Commission Act of 1914
C) 1990 Nutrition Labeling Act
D) All of the above are designed to protect the consumers of products.

Question 18

If an increase in output by a firm imposes uncompensated costs on other firms, these costs are referred to as

A) external diseconomies of production.
B) external economies of production.
C) external diseconomies of consumption.
D) external economies of consumption.

Question 19

If an increase in output by a firm confers uncompensated benefits to other firms, these benefits are referred to as

A) external diseconomies of production.
B) external economies of production.
C) external diseconomies of consumption.
D) external economies of consumption.

Question 20

If the consumption expenditures of some individuals impose uncompensated costs on other individuals, these costs are referred to as

A) external diseconomies of production.
B) external economies of production.
C) external diseconomies of consumption.
D) external economies of consumption.

Question 21

If the consumption expenditures of some individuals confer uncompensated benefits on other individuals, these benefits are referred to as

A) external diseconomies of production.
B) external economies of production.
C) external diseconomies of consumption.
D) external economies of consumption.

Question 22

Government regulation of natural monopolies typically sets the market price so that the level of output corresponds to the point of intersection between long-run

A) marginal cost and marginal revenue.
B) marginal cost and demand.
C) average cost and marginal revenue.
D) average cost and demand.

Question 23

Natural monopolies will produce a socially optimal level of output if government subsidies ensure an economic profit of zero and the market price is set by regulators at the point of intersection between long-run

A) marginal cost and marginal revenue.
B) marginal cost and demand.
C) average cost and marginal revenue.
D) average cost and demand.

Question 24

Which of the following is not a complication encountered by public utility regulatory commissions when they set rates?

A) It is difficult to determine the economic value of a public utility's fixed assets.
B) Public utilities typically engage in price discrimination, so many different rates must be determined.
C) The services provided by public utilities are typically jointly produced, so the allocation of costs among different services is difficult or impossible.
D) All of the above are problems that are encountered when regulatory commissions set rates.

Question 25

The Averch-Johnson effect refers to

A) the inefficiencies that result when regulators set public utility rates too high or too low.
B) the tendency toward natural monopoly in firms that have downward-sloping long-run average cost curves.
C) the 9- to 12-month time lag between recognition of a need for rate revision and action by regulatory commissions.
D) All of the above are correct.

Question 26

Which of the following made monopolization and restraint of trade illegal?

A) Robinson-Patman Act
B) Sherman Act
C) Clayton Act
D) None of the above is correct.

Question 27

Which of the following prohibits tying contracts?

A) Robinson-Patman Act
B) Sherman Act
C) Clayton Act
D) None of the above is correct.

Question 28

Which of the following made it illegal to charge unreasonably low prices with the intention of destroying competition or eliminating competitors?

A) Robinson-Patman Act
B) Sherman Act
C) Clayton Act
D) None of the above is correct.

Question 29

Which of the following stated that "unfair methods of competition" are unlawful?

A) Robinson-Patman Act
B) Sherman Act
C) Clayton Act
D) None of the above is correct.

Question 30

The Wheeler-Lea Act was designed to protect consumers from

A) monopoly.
B) unfair methods of competition.
C) false or deceptive advertising.
D) None of the above is correct.

Question 31

Most antitrust actions have been settled by means of

A) dissolution and divestiture.
B) an injunction.
C) a consent decree.
D) fines and jail sentences.

Question 32

Which of the following is always illegal?

A) Price discrimination
B) Collusion
C) Monopoly
D) Interlocking directorates

Question 33

Which of the following industries was not deregulated during the 1970s and 1980s?

A) Airlines
B) Electricity generation and distribution
C) Telecommunications
D) Banking

Question 34

Which of the following do not protect domestic producers from foreign competition?

A) Import tariffs
B) Import quotas
C) Voluntary export restrictions
D) All of the above protect domestic producers from foreign competition.

Question 35

Which of the following will not result from the imposition of an import tariff on a commodity?

A) The supply of the commodity will increase.
B) The price of the commodity will increase.
C) Domestic production of the commodity will increase.
D) All of the above will result from an import tariff.

Question 36

Which of the following is not an example of a barrier to entry in the passenger airline industry?

A) Long-term leasing of gates at airports
B) Frequent-flier programs
C) Predatory pricing practices where established airlines increase the number of flights
D) TV advertising

Question 37

Which of the following nations has the highest maximum tax rate on profits before tax?

A) USA
B) Ireland
C) Spain
D) Italy

Question 38

Presence of negative externalities causes the market equilibrium price of the product to be (relative to what is socially optimal)

A) Too high
B) Too low
C) Just right
D) Not enough information is provided

Question 39

Presence of negative externalities causes the market equilibrium quantity of the product to be (relative to what is socially optimal)

A) Too high
B) Too low
C) Just right
D) Not enough information is provided

Question 40

A license is usually required to run certain types of businesses. Licensing serves the purpose of

A) Protecting consumers from fraud.
B) Ensuring a minimum degree of competence.
C) Ensuring a minimum level of quality.
D) All of the above.

Question 41

The right granted by the federal government to an inventor for the exclusive use of the invention for a period of 17 years is called a

A) license.
B) patent.
C) exclusive right.
D) monopoly.

Question 42

Businesses often complain about Environment Protection Agency and various regulations regarding pollution mainly because

A) business managers do not care about environment.
B) pollution creates more business opportunities.
C) additional cost in order to be compliant with the regulations.
D) None of the above.

Question 43

Market failure can be best described as a situation in which

A) market participants do not act rationally.
B) market participants fail to achieve their goals.
C) the allocation of goods and services is optimal.
D) the allocation of goods and services is not efficient.

Question 44

Externalities can

A) only create negative side effects.
B) only create positive side effects.
C) create either positive or negative side effects.
D) get rid of side-effects.

Question 45

Your neighbor fixes up his house, mows the lawn and plants a few trees in his front yard. Due to these actions, the value of your house also increases. This is an example of

A) positive externality.
B) negative externality.
C) economies of housing.
D) diseconomies of housing.

Question 46

Which of the following are not one of the methods that are designed to overcome externalities?

A) Prohibition
B) Subsidies
C) Taxation
D) Licensing

Question 47

Natural monopolies are firms which

A) supply the entire market on the decreasing long-run average cost curve.
B) supply the entire market on the decreasing long-run marginal cost curve.
C) supply the entire market on the increasing long-run average cost curve.
D) supply the entire market on the increasing long-run marginal cost curve.

Question 48

Examples of natural monopolies are all except

A) electric companies.
B) water companies.
C) gas companies.
D) All of these are examples of natural monopolies.

Question 49

Which of the following are not issues with regulating monopolies such as public utility firms?

A) Natural monopolies tend to cheat and hide profits from authorities
B) Natural monopolies have no incentives to keep costs low
C) Natural monopolies overinvest or underinvest in fixed assets depending on rates
D) It takes time to recognize issues and adapt regulations for natural monopolies

Question 50

All are ways to resolve antitrust violations except

A) consent decree.
B) injunction.
C) dissolution and divesture.
D) patents.

Question 51

Which of the following firms have had issues with the Justice Department regarding monopolization or various anticompetitive actions?

A) IBM
B) AT&T
C) Microsoft
D) All of the above

Question 52

Which of the following can be regarded as an anticompetitive conduct?

A) Price collusion
B) Conscious parallelism
C) Charging low prices
D) Price discrimination

Question 53

Predatory pricing refers to the case where a firm

A) uses profits earned in one market to sell products bellow cost in another to drive competitors out.
B) uses such prices that match the competitors' prices and offer price-match deals.
C) earns profits by pricing just above the cost.
D) minimizes profit margins to such extent that competitors cannot compete.

Question 54

Which one of the following policies is not used to regulate international trade?

A) Voluntary export restraints
B) Voluntary import restraints
C) Antidumping duties
D) Specific technical and administrative regulations

Question 55

Which of the following statements regarding airline industry is correct?

A) Airline industry used to be much more concentrated in 1980s than it is today.
B) Airline industry used to be much less concentrated in 1980s than it is today.
C) Airline industry is as concentrated today as it used to be in 1980s.
D) Airline industry was and is not concentrated.

Question 56

If United States increases imports tariffs on cheese, what happens to prices and consumption of cheese in United States?

A) Prices decrease, consumption increases
B) Prices increase, consumption increases
C) Prices increase, consumption decreases
D) Prices decrease, consumption decreases

Question 57

How does a tariff on cheese imports, affect domestic producers?

A) Since the domestic price of cheese decreases, they are usually worse off
B) Since the domestic price of cheese increases, they are usually worse off
C) Since the domestic price of cheese decreases, they are usually better off
D) Since the domestic price of cheese increases, they are usually better off

Question 58

Which one of the following is the most correct comparison of an import quota and an import tariff?

A) Import quota restricts foreign competition while import tariff does not.
B) Import tariff restricts foreign competition while import quota does not.
C) Import quotas are more stringent and usually do not increase government revenue.
D) Import quotas are less stringent and usually increase government revenue.

Question 59

If the world price of homogeneous cotton is above the domestic price, an import tariff

A) will have a negative effect on domestic consumers of cotton.
B) will have a positive effect on domestic producers of cotton.
C) will have a positive effect on domestic producers and consumers of cotton.
D) may or may not effect domestic producers and consumers of cotton.

Question 60

VER refers to

A) vehicle emissions regulations.
B) voluntary export restraint.
C) vehicle and environment regulations.
D) voluntary emissions reports.

Question 61

Licenses and patents are examples of regulations that act as barriers to entry and thereby limit competition.

Question 62

The public interest theory of regulation holds that government regulation is intended to correct problems due to monopoly power and externalities.

Question 63

Externalities refer to the side effects of production or consumption that cause private and social costs to differ.

Question 64

If the production of a good gives rise to external diseconomies, then less of the good is being produced than is socially optimal.

Question 65

If the consumption of a good gives rise to external economies, then less of the good is being consumed than is socially optimal.

Question 66

According to the public interest theory of regulation, the presence of external effects justifies government intervention.

Question 67

Government can correct for external diseconomies of production by subsidizing production.

Question 68

Government can correct for external diseconomies of consumption by taxing consumption.

Question 69

Natural monopolies exist because of government regulation.

Question 70

A firm with an average total cost curve that has a negative slope at the level of output required to supply the entire market is a natural monopoly.

Question 71

Regulation that guarantees a normal rate of return on investment gives public utilities a strong incentive to keep costs down.

Question 72

If regulators set rates too high, then public utilities will tend to underinvest in fixed assets.

Question 73

The two basic statutes of antitrust legislation prohibit monopolization, restraints of trade, and unfair competition.

Question 74

The first federal antitrust law enacted was the Clayton Act.

Question 75

A trust is an organizational structure that allows firms in an oligopolistic industry to operate as a cartel.

Question 76

A tying contract requires that sellers charge a price that is tied to the quantity of output produced.

Question 77

Interlocking directorates refers to a situation in which the same individual is on the board of directors of two or more competing corporations.

Question 78

Most antitrust suits filed in the United States are initiated by either the Department of Homeland Security or the Federal Trade Commission (FTC).

Question 79

The Justice Department will generally challenge a horizontal merger if the postmerger Herfindahl index is less than 1,000.

Question 80

Conscious parallelism refers to the adoption of similar policies by oligopolists as a response to their recognized interdependence.