Deck 14: A Managers Guide to Government in the Marketplace

Question 1

Which of the following is antitrust legislation?

A) Sherman Act
B) Securities and Exchange Act
C) Lanham Act
D) Sherman Act and Lanham Act

Answer 1

A

Question 2

The external marginal cost of producing coal is MC_external = 6Q while the internal marginal cost is MC_internal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. How much output would a monopoly produce?

A) 10
B) 20
C) 15
D) It cannot be determined because of incomplete information.

Answer 2

C

Question 3

Rent seeking:

A) involves resources paid to politicians to enhance one group at the expense of another.
B) results in less monopoly power.
C) results in externalities.
D) None of the statements are correct.

Answer 3

A

Question 4

Which of the following is NOT a result of certification of skills?

A) A stated minimum standard of service is provided.
B) A price higher than that which would have been charged if there were no certification.
C) A bigger quantity exchanged than that which would have resulted if there were no certification.
D) A profession is formed.

Question 5

Which of the following explains why big business typically spends more on rent-seeking activities than consumers?

A) Lobbying is a public good to consumers.
B) Lobbying is a public good to businesses.
C) Labor unions in the involved firms.
D) Lobbying is a public good to businesses and labor unions in the involved firms.

Question 6

When the government imposes an effective price ceiling on a monopolist, what will be sure to happen in the short run?

A) The dollar price will increase.
B) The dollar price will fall.
C) There will be a shortage of the product.
D) There will be a surplus of the product.

Question 7

The purpose of the Clean Air Act (1970) was to:

A) reduce market power.
B) control negative externalities.
C) improve competition across international markets.
D) help make information easily obtainable for producers and consumers.

Question 8

A price ceiling imposed on a monopoly may:

A) lead to a shortage.
B) lead to no shortage.
C) drive the monopolist out of business.
D) All of the statements associated with this question are correct.

Question 9

The presence of government in the market leads to:

A) benefits at no cost to society.
B) rent seeking.
C) externalities.
D) adverse selection.

Question 10

Under the Lanham Act, in concert with the Clayton Act:

A) government will sue a firm for false advertising.
B) rival firms are not eligible to sue another firm for false advertising.
C) people harmed by deceptive advertising can sue the firm and receive compensation.
D) rival firms are not eligible to sue another firm for false advertising and people harmed by deceptive advertising can sue the firm and receive compensation.

Question 11

The external marginal cost of producing coal is MC_external = 6Q while the internal marginal cost is MC_internal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. How much output would a competitive industry produce?

A) 10
B) 20
C) 15
D) 8

Question 12

Insider trading is prohibited by the:

A) Security Exchange Act.
B) Lanham Act.
C) Clayton Act.
D) Robinson-Patman Act.

Question 13

Which of the following is true concerning negative externalities?

A) Firms tend to produce more than the efficient level of output.
B) Society gains because firms do not pay the external costs of production.
C) Perfect competition is better than monopoly from the viewpoint of society even in the presence of negative externalities.
D) With negative externalities, a monopoly will always produce an output level less than is socially efficient.

Question 14

Which of the following is NOT a valuable role of government in a free market society?

A) To reduce negative externalities.
B) To enhance rent-seeking activities.
C) To reduce market power.
D) To provide public goods.

Question 15

Which of the following is a public good?

A) National defense
B) Telephones
C) Electricity
D) All of the statements associated with this question are public goods.

Question 16

The external marginal cost of producing coal is MC_external = 6Q while the internal marginal cost is MC_internal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. What is the socially efficient level of output?

A) 10
B) 20
C) 15
D) 8

Question 17

Under the merger guidelines written by the DOJ and FTC, a merger may not be challenged if:

A) there is significant foreign competition.
B) the firms involved have monetary problems.
C) there is an emergence of new technology.
D) All of the statements associated with this question are correct.

Question 18

If a price ceiling on a monopolist results in NO shortage:

A) the full economic price is lower than the one set by the ceiling.
B) rent seeking must be effective.
C) the firm is on the verge of leaving the market.
D) the firm must be making zero economic profits.

Question 19

The external marginal cost of producing coal is MC_external = 6Q while the internal marginal cost is MC_internal = 4Q. The inverse demand for coal is given by P = 120 - 2Q. If the government taxed output at $2 per unit, what would a competitive industry produce?

A) 10
B) 20
C) 15
D) 8

Question 20

When the government imposes an excise tax on foreign imports:

A) domestic consumers are harmed.
B) domestic firms benefit.
C) domestic firms are harmed.
D) domestic consumers are harmed and domestic firms benefit.

Question 21

The marginal cost of producing a good to society is the:

A) horizontal sum of the supply curve and the marginal cost of polluting.
B) vertical sum of the demand curve and the marginal cost of polluting.
C) horizontal sum of the demand curve and the marginal cost of polluting.
D) vertical sum of the supply curve and the marginal cost of polluting.

Question 22

If a firm has been proven liable for a false ad, it has to:

A) terminate the false ad.
B) recall any product with the false claim on it.
C) compensate more than the damage it has caused.
D) All of the statements associated with this question are correct.

Question 23

A firm has a constant marginal social cost of producing that equals $2Q. What is the socially efficient level of production for a firm facing an inverse demand P = 60 - 2Q?

A) 10
B) 15
C) 20
D) 25

Question 24

Which cost measures the cost to society of producing a good?

A) Internal cost
B) External cost
C) Social cost
D) External cost and social cost

Question 25

The domestic demand and supply for sugar are Q^d = 40,000 - 200P and Q^SD = 10,000 + 300P. The foreign supply is Q^SF = 20,000 + 100P. What is the total supply of sugar in the domestic market?

A) Q = 50,000 + 100P
B) Q = 30,000 + 400P
C) Q = 15,000 + 200P
D) Q = 10,000 + 300P

Question 26

The domestic demand and supply for sugar are Q^d = 40,000 - 200P and Q^SD = 10,000 + 300P. The foreign supply is Q^SF = 20,000 + 100P. Suppose an import quota of 5,000 is imposed in the domestic market. What will be the new market price of sugar?

A) 20
B) 30
C) 40
D) 50

Question 27

If the government imposes a price ceiling below the monopolist's average cost curve, then in the long run the regulation makes:

A) consumers better off.
B) consumers worse off.
C) the monopolist better off.
D) None of the statements is correct.

Question 28

In order to eliminate the inefficiency brought about by a monopoly, the government wants to impose a price ceiling on the monopoly. What is the optimal price to be imposed?

A) The competitive price
B) The competitive price, unless it is below ATC.
C) The competitive price, unless it is below MR.
D) The competitive price, unless it is above ATC.

Question 29

Which of the following is true for a monopoly?

A) A monopoly always makes a positive profit.
B) A price ceiling on a monopoly is always desirable.
C) Price does not equal marginal cost.
D) A price ceiling on a monopoly is always desirable and price does not equal marginal cost.

Question 30

According to the Clean Air Act, a new firm in the covered industry is required to:

A) obtain a permit to pollute.
B) at least match the most effective system existing in the industry.
C) obtain a permit to pollute and at least match the most effective system existing in the industry.
D) None of the statements are correct.

Question 31

Which of the following statements is NOT true in the presence of externalities?

A) Social marginal cost equals the sum of internal and external marginal costs.
B) A competitive industry generally produces more than a monopoly.
C) A competitive industry always produces more than the socially efficient level of output.
D) A monopoly always produces more than the socially efficient level of output.

Question 32

Which cost measures the pollution cost to society?

A) Internal cost
B) External cost
C) Social cost
D) External cost and social cost

Question 33

In the United States, government is the sole property owner of:

A) labor.
B) air.
C) land.
D) knowledge.

Question 34

In the absence of price regulation, a monopolist:

A) charges a price below MR.
B) charges a price above MC.
C) charges a price equal to MR.
D) charges a price above MC and equal to MR.

Question 35

How can a firm in a merger avoid antitrust action by the government?

A) Prove that the industry's HHI is over 1800.
B) Prove that efficiency will improve from the resulting merger.
C) Prove that price will not increase from the resulting merger.
D) None of the statements are correct.

Question 36

To prevent air pollution and breach of contract, which tools does the government use?

A) Penalties for both
B) Permits for both
C) Permits for pollution and penalties for breach
D) Penalties for pollution and permits for breach

Question 37

The domestic demand and supply for sugar are Q^d = 40,000 - 200P and Q^SD = 10,000 + 300P. The foreign supply is Q^SF = 20,000 + 100P. What is the domestic market price of sugar?

A) 12.3
B) 15.0
C) 16.7
D) 18.3

Question 38

What is the immediate result of applying the Clean Air Act to a previously nonregulated industry?

A) Price decreases and production is reduced.
B) Price increases and production is reduced.
C) Price decreases and production is enlarged.
D) Price increases and production is enlarged.

Question 39

The Clean Air Act aids new entrants in a regulated industry when demand increases and provides an incentive for existing firms to invest in new antipollution technology by:

A) restricting pollution permits from being traded.
B) allowing pollution permits to be traded within the industry.
C) allowing pollution permits to be traded across industries.
D) allowing pollution permits to be traded within the industry and allowing pollution permits to be traded across industries.

Question 40

The Clean Air Act and its amendments increase the production costs of the firms in a covered industry through increased:

A) fixed costs while marginal cost is unchanged.
B) marginal cost while fixed costs remain the same.
C) fixed costs and increased marginal costs.
D) average cost while marginal cost is unchanged.

Question 41

The domestic demand and supply for sugar are Q^d = 60,000 - 400P and Q^SD = 20,000 + 500P. The foreign supply is Q^SF = 20,000 + 100P. How many units of sugar will domestic producers supply after the quota is imposed?

A) 35,000
B) 30,000
C) 58,000
D) 23,000

Question 42

An unregulated monopolist will likely:

A) charge a price below MR.
B) charge a price above MC.
C) charge a price equal to MR.
D) charge a price below MR and above MC.

Question 43

The external marginal cost of producing coal is MC_external = 8Q while the internal marginal cost is MC _internal = 6Q. The inverse demand for coal is given by P = 180 - 4Q. What is the socially efficient level of output?

A) 10
B) 20
C) 15
D) 18

Question 44

Consumer surplus in the unregulated monopoly market in the figure below is:

A) $16.
B) $8.
C) $4.
D) $0.

Question 45

The domestic demand and supply for sugar are Q^d = 60,000 - 400P and Q^SD = 20,000 + 500P. The foreign supply is Q^SF = 20,000 + 100P. Suppose an import quota of 13,000 is imposed in the domestic market. What will be the new market price of sugar?

A) $15
B) $20
C) $30
D) $45

Question 46

The external marginal cost of producing coal is MC_external = 8Q while the internal marginal cost is MC _internal = 6Q. The inverse demand for coal is given by P = 180 - 4Q. How much output would a competitive industry produce?

A) 10
B) 20
C) 15
D) 18

Question 47

Which of the following is NOT a pure public good?

A) Clean air
B) National defense
C) Telephones
D) All of the statements associated with this question are pure public goods.

Question 48

Which of the following raises domestic prices when demand is relatively high?

A) Domestic subsidies
B) Lump sum tariff
C) Excise tariff
D) Lump sum tariff and excise tariff

Question 49

The import tariffs that President Bush placed on imported steel likely had what effect?

A) Domestic steel producers were helped, but domestic steel consumers were hurt.
B) Both domestic steel consumers and foreign steel producers were helped.
C) Both domestic steel producers and domestic steel consumers were helped.
D) Foreign steel producers were helped, but domestic steel consumers were hurt.

Question 50

The external marginal cost of producing coal is MC_external = 8Q while the internal marginal cost is MC _internal = 6Q. The inverse demand for coal is given by P = 180 - 4Q. If the government taxed output at $2 per unit, what would a competitive industry produce?

A) 10
B) 20
C) 15
D) 18

Question 51

Which of the following raises domestic prices only when demand is relatively low?

A) Domestic subsidies
B) Lump sum tariff
C) Excise tariff
D) Lump sum tariff and excise tariff

Question 52

The main purpose of antitrust policy is to:

A) reduce market power.
B) control negative externalities.
C) help make information easily obtainable for producers and consumers.
D) All of the statements associated with this question are correct.

Question 53

As additional consumers obtain the benefits of a pure public good, such as national defense, the benefits to the existing consumers will:

A) decrease.
B) increase.
C) stay the same.
D) increase in the short run, but decrease in the long run.

Question 54

In producing the efficient amount of a public good, government should take into account:

A) only the demand from high-demand consumers.
B) only the demand from low-demand consumers.
C) the vertical sum of all individual inverse demand curves.
D) the horizontal sum of all individual inverse demand curves.

Question 55

The domestic demand and supply for sugar are Q^d = 60,000 - 400P and Q^SD = 20,000 + 500P. The foreign supply is Q^SF = 20,000 + 100P. What is the domestic market price of sugar?

A) $15
B) $20
C) $30
D) $45

Question 56

The domestic demand and supply for sugar are Q^d = 60,000 - 400P and Q^SD = 20,000 + 500P. The foreign supply is Q^SF = 20,000 + 100P. What is the domestic quantity supplied at the domestic market price?

A) 22,000
B) 10,000
C) 52,000
D) 30,000

Question 57

The domestic demand and supply for sugar are Q^d = 40,000 - 200P and Q^SD = 10,000 + 300P. The foreign supply is Q^SF = 20,000 + 100P. Suppose an import quota of 5,000 is imposed in the domestic market. How many units of sugar will domestic producers supply after the quota is imposed?

A) 20,000
B) 25,000
C) 30,000
D) 35,000

Question 58

Rent seeking:

A) results in less market share for the rent seekers.
B) involves lobbyists influencing government policies to benefit their interests.
C) results in more negative externalities.
D) None of the statements are correct.

Question 59

The unregulated monopoly in the figure below will earn profit of:

A) $16.
B) $8.
C) $4.
D) $0.

Question 60

Which of the following factors reduces the need for government involvement in the marketplace?

A) The presence of externalities
B) The incentive to rent-seek
C) The need for public goods
D) Incomplete information

Question 61

Suppose a monopolist has positive fixed costs and constant marginal costs. If the government regulates a monopoly's price to marginal cost, in the long run:

A) the monopolist will earn a profit if ATC > MC.
B) the monopolist will exit the industry.
C) the monopolist will earn a profit if ATC > P.
D) the monopolist will earn zero profits.

Question 62

Consider the monopoly in the figure below with price regulated at $2 per unit. Consumer surplus at the regulated price is:

A) $9.
B) $8.
C) $4.50.
D) There is insufficient information to determine consumer surplus.

Question 63

A negative externality:

A) is a payment received to parties not involved in the production or consumption of a good.
B) is a cost borne by parties not involved in the production or consumption of a good.
C) results from the absence of well-defined property rights.
D) is a cost borne by parties not involved in the production or consumption of a good and results from the absence of well-defined property rights.

Question 64

Which of the following is true about a lump-sum tariff?

A) Domestic firms' marginal cost curves are shifted up by the amount of the lump-sum tariff.
B) Foreign firms' average cost curves are shifted up by the amount of the lump-sum tariff.
C) Domestic firms' average cost curves are shifted up by the amount of the lump-sum tariff.
D) Foreign firms' marginal cost curves are shifted up by the amount of the lump-sum tariff.

Question 65

Consider the monopoly in the figure below with price regulated at $2 per unit. Deadweight loss resulting from the unregulated monopoly price is _________ than the deadweight loss resulting from the regulated price.

A) greater
B) less
C) no different
D) There is insufficient information to determine the difference in the deadweight loss between the regulated and unregulated prices.

Question 66

Nonrivalry, as it relates to public goods, means that:

A) consumer rivalry does not exist in this market.
B) producer rivalry does not exist in this market.
C) consumer-producer rivalry does not exist in this market.
D) government-producer rivalry does not exist in this market.

Question 67

An excise tariff imposed on foreign competitors will:

A) increase domestic firms' profits at all levels of demand.
B) increase domestic firms' profits only when demand is high.
C) increase domestic firms' profits only when demand is low.
D) have no impact on domestic firms' profits when demand for domestic goods is high.

Question 68

Consider the monopoly in the figure below with price regulated at $2 per unit. Monopoly profits at the regulated price (assuming the presence of fixed costs) are:

A) $12.
B) $16.
C) $5.
D) There is insufficient information to determine the monopoly profits.

Question 69

How much would the monopoly in the figure below spend to prevent its price being regulated to marginal (or average) cost?

A) $16
B) $8
C) $4
D) $0

Question 70

Which of the following is true about an excise tariff?

A) Domestic firms' marginal cost curves are shifted up by the amount of the excise tariff.
B) Foreign firms' average cost curves are shifted down by the amount of the excise tariff.
C) Domestic firms' average cost curves are shifted up by the amount of the excise tariff.
D) Foreign firms' marginal cost curves are shifted up by the amount of the excise tariff.

Question 71

If the government regulates a monopoly's price below the socially efficient level, then:

A) deadweight loss increases and there is a surplus output.
B) deadweight loss decreases and there is a shortage of output.
C) deadweight loss increases and there is a shortage of output.
D) deadweight loss decreases and there is a surplus of output.

Question 72

A lump-sum tariff imposed on foreign competitors will:

A) always remove foreign competitors from the market.
B) increase the profits of domestic firms when demand is high.
C) have no impact on domestic firms' profits when demand for domestic goods is high.
D) decrease the profits of domestic firms when demand is high.

Question 73

Nonexclusionary, as it relates to public goods, means that:

A) no producer can be excluded from providing the good.
B) no one can be excluded from consuming the good, once it is provided.
C) the government can only exclude consumers from consuming the good.
D) producer-consumer rivalry exists.

Question 74

Consider the monopoly in the figure below with price regulated at $2 per unit. The regulated price will result in a:

A) surplus of 2 units.
B) shortage of 2 units.
C) surplus of 5 units.
D) shortage of 5 units.

Question 75

Consider the monopoly in the figure below with price regulated at $2 per unit. The deadweight loss under the regulated price is:

A) $4.50.
B) $5.
C) $8.
D) There is insufficient information to compute the deadweight loss at the regulated price.

Question 76

According to the Department of Justice's Horizontal Merger Guidelines, a post-merger HHI _______ is considered _____________________.

A) below 1,000; low resulting in a high likelihood that a merger will be permitted
B) above 1,800; low resulting in a high likelihood that a merger will be permitted
C) below 1,000; high resulting in high likelihood that a merger will be blocked
D) below 1,800; high resulting in high likelihood that a merger will be blocked

Question 77

Which of the following are characteristics of public goods?

A) Nonrivalry
B) Nonchivalrous
C) Nonexclusionary
D) Nonrivalry and nonexclusionary

Question 78

In highly concentrated markets, an increase in the HHI of more than _________ raises potential concerns.

A) 5 points
B) 10 points
C) 30 points
D) 50 points

Question 79

How much would consumers in the figure below spend to persuade politicians to regulate the monopoly's price to marginal (or average) cost?

A) $24
B) $16
C) $8
D) $0

Question 80

Consider the monopoly in the figure below with price regulated at $2 per unit. In this market, ___________ units will be exchanged.

A) 3
B) 4
C) 5
D) 8