Deck 27: Regulation and Antitrust Policy in a Globalized Economy

Question 1

The regulation of the prices charged by insurance companies is known as

A) the Federal Register.
B) social regulation.
C) the market share test.
D) economic regulation.

Answer 1

D

Question 2

According to OSHA standards, the air in the building that John works in is unsafe. The type of regulation that OSHA engages in is known as

A) the Federal Register.
B) social regulation.
C) the market share test.
D) economic regulation.

Answer 2

B

Question 3

Cab drivers operating from JFK Airport to the City of New York legally must charge a specific fare. This is an example of

A) social regulation.
B) economic regulation.
C) the market share test.
D) the rate of return test.

Answer 3

B

Question 4

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

A) the Federal Reserve
B) Federal Aviation Administration
C) Food and Drug Administration
D) Federal Deposit Insurance Corporation

Question 5

Commonwealth Edison is the only provider of electricity to many households in the Chicago area. Commonwealth Edison is regulated by the government. This type of regulation is known as

A) the Federal Register.
B) social regulation.
C) the market share test.
D) economic regulation.

Question 6

The Securities and Exchange Commission and the Federal Aviation Administration are examples of agencies engaged in

A) the regulation of natural monopolies.
B) the regulation of nonmonopolistic industries.
C) social regulation.
D) health and safety regulation.

Question 7

Which of the following federal agencies is engaged in social regulation?

A) Equal Employment Opportunity Commission
B) Office of the Comptroller of the Currency
C) the Securities and Exchange Commission
D) Federal Deposit Insurance Corporation

Question 8

Which of the following protects people from incompetent or unscrupulous producers?

A) the Federal Register
B) social regulation
C) the market share test
D) economic regulation

Question 9

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

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

Question 10

The two basic types of government regulation are

A) regulation of natural monopolies and regulation of cartels.
B) economic regulation and industry regulation.
C) social regulation and labor law.
D) social regulation and economic regulation.

Question 11

Which of the following is NOT an objective of economic regulation?

A) to regulate the prices enterprises are allowed to charge
B) to fix prices so that they are never allowed to rise
C) to keep rates of return in an industry at a competitive level
D) to prevent monopoly profits

Question 12

Which of the following government agencies enforces social regulation?

A) Environmental Protection Agency
B) Federal Deposit Insurance Corporation
C) Federal Reserve
D) Federal Aviation Administration

Question 13

The goals of rate regulation have included the prevention of

A) monopoly profits.
B) oligopolistic pricing.
C) marginal cost pricing.
D) average cost pricing.

Question 14

One of the basic differences between social and economic regulations is that

A) economic regulations only apply to financial institutions while social regulations apply to a greater variety of institutions.
B) social regulations only apply to non-profit organizations while economic regulations apply only to for-profit organizations.
C) economic regulations cover only particular industries while social regulations apply to all firms in the economy.
D) economic regulations focus on the banking industry while social regulations focus on monopolies.

Question 15

The Federal Trade Commission is an agency that would enforce

A) social regulation.
B) economic regulation.
C) antitrust laws.
D) fair pricing for consumers.

Question 16

One key purpose of economic regulation is

A) to force a firm to produce at the point at which marginal cost equals marginal revenue.
B) to control the quality of service provided by a monopolist.
C) to control the price that regulated enterprises are allowed to charge.
D) to focus on the impact of production on the environment and society, the working conditions under which goods and services are produced, and sometimes the physical attributes of goods.

Question 17

The Federal Trade Commission (FTC) is a regulatory agency that is responsible for preventing firms from engaging in misleading advertising. This type of regulation is known as

A) the Federal Register.
B) social regulation.
C) the market share test.
D) economic regulation.

Question 18

U.S. government regulation of social and economic activity

A) only began after World War II.
B) costs less now than it did in the 1980s.
C) has increased steadily since 1970.
D) is confined to antitrust law.

Question 19

Which type of regulation applies to all firms in the economy, as opposed to only covering specific industries?

A) economic regulation
B) social regulation
C) rate regulation
D) statutory regulation

Question 20

Which of the following federal agencies is engaged in economic regulation?

A) Occupational Safety and Health Administration
B) Federal Motor Carrier Safety Administration
C) Food and Drug Administration
D) Consumer Product Safety Commission

Question 21

All of the following are regulatory agencies EXCEPT

A) the National Rifle Association.
B) the Environmental Protection Agency.
C) the Food and Drug Administration.
D) the Occupational Safety and Health Administration.

Question 22

Since 1970, federal expenditures by regulatory agencies have

A) remained constant.
B) decreased slightly.
C) increased dramatically.
D) increased slightly.

Question 23

An agency that regulates product markets is the

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

Question 24

The purpose of social regulation is

A) to force a firm to produce at the point where marginal cost equals marginal revenue.
B) to control the quality of service provided by a monopolist.
C) to control the price that regulated enterprises are allowed to charge.
D) to focus on the impact of production on the environment and society, the working conditions under which goods and services are produced, and sometimes the physical attributes of goods.

Question 25

This agency is responsible for protecting consumers from products posing fire, electrical, chemical, or mechanical hazards or dangers to children.

A) Environmental Protection Agency
B) Consumer Product Safety Commission
C) Equal Employment Opportunity Commission
D) Occupational Safety and Health Administration

Question 26

Which of the statements best describes the difference between economic regulation and social regulation?

A) There are no significant differences between economic and social regulation, social regulation is a more modern way of regulating an economy.
B) Economic regulation focuses on output and price; social regulation focuses on improving the quality of life.
C) Social regulation focuses on output and price; economic regulation focuses on quality of life issues.
D) Social regulation targets industries like transportation, while economic regulation targets utilities.

Question 27

This agency is responsible for regulating the quality and safety of foods, health and medical products, pharmaceuticals, cosmetics, and animal feed.

A) Environmental Protection Agency
B) Food and Drug Administration
C) Equal Employment Opportunity Commission
D) Federal Trade Commission

Question 28

The major goal of social regulation is

A) a better quality of life through a less polluted environment, better working conditions, and safer and better products.
B) to make sure that firms are not earning monopoly profits.
C) to make sure that prices are kept low enough so that every person can purchase the good.
D) to make sure that the firm produces at the socially optimal point of production.

Question 29

This agency is responsible for preventing businesses from engaging in misleading advertising, unfair trade practices, and monopolistic actions, as well as for protecting consumer rights.

A) Environmental Protection Agency
B) Food and Drug Administration
C) Equal Employment Opportunity Commission
D) Federal Trade Commission

Question 30

Which of the following is concerned with social regulation?

A) Federal Reserve Board
B) Sherman Commission
C) Food and Drug Administration
D) Board of Education

Question 31

A difference between economic regulation and social regulation is that

A) the former tends to affect the prices at which products are sold and the latter does not.
B) the former tends to affect the profits of firms and the latter does not.
C) the former tends to be specific to an industry and the latter tends to affect firms in all industries.
D) the former tends to be done at the state level and the latter at the federal level.

Question 32

All of the following are forms of social regulation EXCEPT

A) the Food and Drug Administration regulating the quality of drugs.
B) the Public Utility Commission regulating the price of telephone service.
C) the Environmental Protection Association regulating automobile emissions.
D) the Occupational Safety and Health Administration regulating workplace safety.

Question 33

The two basic types of government regulation are

A) monopoly and oligopoly regulation.
B) labor and environmental regulation.
C) federal and state industrial regulation.
D) economic and social regulation.

Question 34

This agency regulates workplace safety and health conditions.

A) Environmental Protection Agency
B) Consumer Product Safety Commission
C) Equal Employment Opportunity Commission
D) Occupational Safety and Health Administration

Question 35

This agency develops and enforces environmental standards for air, water, toxic waste, and noise.

A) Environmental Protection Agency
B) Consumer Product Safety Commission
C) Equal Employment Opportunity Commission
D) Occupational Safety and Health Administration

Question 36

The federal regulatory agency whose mission is to regulate workplace health and safety is the

A) AFL-CIO.
B) FTC.
C) OSHA.
D) SEC.

Question 37

While economic regulation applies to ________ industries, social regulation applies to ________ firms.

A) particular; individual
B) particular; all
C) all; individual
D) utility; healthcare

Question 38

This agency is responsible for investigating complaints of discrimination based on race, religion, sex or age in hiring, promotion, firing, wages, testing, and all other conditions of employment.

A) Environmental Protection Agency
B) Food and Drug Administration
C) Equal Employment Opportunity Commission
D) Federal Trade Commission

Question 39

Regulation imposed by such organizations as the Food and Drug Administration or the Environmental Protection Agency seeking to protect the welfare of people in our nation is referred to as

A) moral regulation.
B) natural regulation.
C) rate-of-return regulation.
D) social regulation.

Question 40

An agency that regulates labor markets is the

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

Question 41

In marginal cost pricing, the natural monopoly would have to set price equal to

A) AFC.
B) AVC.
C) ATC.
D) MC.

Question 42

In the above figure, if this natural monopolist were unregulated, the profit maximizing firm would sell the product at the price

A) A.
B) B.
C) C.
D) F.

Question 43

Suppose that a regulatory agency has imposed marginal cost pricing on a natural monopolist. We expect that

A) the firm will earn only a normal profit.
B) the firm's average total cost of production is rising over the relevant range of production.
C) the firm will rise its price above marginal cost.
D) the firm will earn economic losses.

Question 44

The Federal Register

A) itemizes state and local government spending.
B) is used to track immigration.
C) publishes all the new federal regulatory rules.
D) has decreased in size.

Question 45

A natural monopoly owes its existence to

A) control of a key input.
B) persistently declining long-run average costs as scale increases.
C) patents.
D) increasing marginal returns and the ability to obtain quantity discounts from suppliers.

Question 46

Regulators usually encourage natural monopolists to engage in

A) marginal cost pricing.
B) average cost pricing.
C) marginal cost pricing, with subsidies from the government offsetting the losses.
D) inefficient pricing.

Question 47

How does social regulation differ from economic regulation?

Question 48

A firm that has taken advantage of economies of scale and expanded to become the only producer in the market is

A) a cartel.
B) a natural monopoly.
C) a monopolistic competitor.
D) an oligopolist.

Question 49

If a public service commission requires a natural monopoly to set its price equal to the long-run marginal cost, this will result in

A) excessive economic profits to the monopoly.
B) normal economic profits to the monopoly.
C) losses to the monopoly.
D) either economic profits or losses, depending on the efficiency of the monopoly.

Question 50

In the above figure, if this natural monopolist were regulated and allowed to earn a "fair" rate of return, it would produce

A) at Q1 output rate.
B) at Q2 output rate.
C) at Q3 output rate.
D) past the Q3 output rate.

Question 51

Social regulation is focused on all of the following EXCEPT

A) the impact of production on the environment and society.
B) better working conditions, and safer and better products.
C) a better quality of life through a less polluted environment.
D) ensuring costs are minimized and benefits are maximized.

Question 52

In a natural monopoly situation

A) there are large economies of scale relative to demand.
B) the firm has an upward sloping average cost curve.
C) producers try to differentiate their product with advertising.
D) there is no need for government regulation.

Question 53

In the above figure, if this natural monopolist were unregulated, the profit maximizing firm would produce

A) at Q1 output rate.
B) at Q2 output rate.
C) at Q3 output rate.
D) past the Q3 output rate.

Question 54

If regulators force a natural monopoly to price as a perfectly competitive firm would, the natural monopolist

A) will experience a lower marginal cost.
B) will earn an economic loss.
C) will expand its output.
D) will experience a rise in long-term average costs.

Question 55

In the above figure, if this natural monopolist were forced to use marginal cost pricing, it would produce

A) at Q1 output rate.
B) at Q2 output rate.
C) at Q3 output rate.
D) past the Q3 output rate.

Question 56

What is the main difference between economic regulation and social regulation?

Question 57

Financial markets are regulated by

A) the Securities and Exchange Commission.
B) the Stock and Bond Exchange Commission.
C) the Security and Protection Commission.
D) the Stock and Exchange Commission.

Question 58

In the above figure, if this natural monopolist were forced to use marginal cost pricing, it would sell the product at the price

A) A.
B) C.
C) E.
D) F.

Question 59

In average cost pricing, the natural monopoly would have to set price equal to

A) AFC.
B) AVC.
C) ATC.
D) MC.

Question 60

In the above figure, if this natural monopolist were regulated and allowed to earn a "fair" rate of return, it would sell the product at the price

A) A.
B) C.
C) B.
D) F.

Question 61

In the above figure, which of the following statements is FALSE if the firm is operating at output level Q2?

A) The output is equivalent to an unregulated monopolist.
B) Economic profits are positive.
C) The price is lower than at an equivalent firm forced by regulators to charge ATC pricing.
D) Average costs would be lowered by expanding output.

Question 62

Without any regulation, the natural monopolist will

A) not produce any output.
B) produce to the point at which P = ATC.
C) produce less output than it would if the industry was purely competitive.
D) have an upward-shifting average cost curve.

Question 63

A regulated natural monopolist allowed to earn a "fair" rate of return would produce to the point at which

A) the price per unit equals the long-run average cost.
B) the marginal revenue curve meets the long-run average cost curve.
C) the marginal revenue curve meets the long-run marginal cost curve.
D) the price per unit equals its marginal revenue.

Question 64

If regulators disallow price increases requested by a natural monopoly that is currently earning an economic loss, quality of service will

A) increase rapidly.
B) likely fall.
C) remain unchanged.
D) none of the above.

Question 65

The reason an unregulated natural monopolist will produce at an economically inefficient quantity is

A) due to the fact that the monopolist will equate marginal cost with price to determine the output level.
B) due to the fact that the monopolist will equate average total cost with price to determine the output level.
C) that the price does not equal the true marginal cost of producing the good.
D) that the monopolist will produce a quantity greater than the minimum of the average total cost curve.

Question 66

An unregulated natural monopolist would produce to the point at which

A) P = AC.
B) MR = AC.
C) MR = MC.
D) P = MR.

Question 67

When promoting average cost pricing, regulators

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 68

Which of the following statements regarding economic regulation is TRUE?

A) Economic regulation has failed by insisting that firms must be allowed to earn a normal rate of return.
B) Rate-of-return regulation has been much more effective than cost-of-service regulation.
C) Economic regulation deals only with rates of return, and not with prices.
D) Economic regulation deals mainly with prices firms charge, but firms can alter their return by altering quality of service, effectively raising the price per constant-quality-unit.

Question 69

A natural monopoly that is NOT regulated will choose to produce at the

A) minimum point of the long-run average cost curve.
B) point at which marginal cost is above average total cost.
C) point at which the demand curve intersects the long-run average cost curve.
D) point at which marginal revenue equals marginal cost.

Question 70

Regulators employ average cost pricing instead of marginal cost pricing because

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 71

One goal of rate-of-return regulation is the prevention of

A) free market entry.
B) positive economic profits.
C) poor quality service.
D) environmental degradation.

Question 72

The primary purpose of economic regulation of an industry is to

A) control the prices charged by the regulated industry.
B) increase taxes across the board.
C) reduce output.
D) control hiring and firing within the industry.

Question 73

With average cost pricing, the monopolist

A) earns no accounting profit.
B) produces where P = MC.
C) earns a normal rate of return for its shareholders.
D) does not cover opportunity costs.

Question 74

When production is characterized by persistently declining long-run average costs as output increases

A) the costs of production are greater when competition exists than when a single firm produces a good.
B) it is impossible for two firms to compete in the market.
C) the costs are lower if a single firm exists, and even if the firm is unregulated, price will still be lower with a single firm.
D) there is no need for the government to limit competition by licensing requirements.

Question 75

An unregulated natural monopolist will produce the quantity at which

A) average total costs are minimized.
B) marginal cost equals marginal revenue.
C) marginal cost equals the long run average cost curve.
D) the long-run average cost curve intersects the demand curve.

Question 76

The price charged by a monopolist is socially inefficient because the price

A) exceeds the true marginal cost of the resources used.
B) is less than the opportunity cost of the resources used.
C) puts the monopolist into a higher tax bracket.
D) is too low.

Question 77

A natural monopoly exists when

A) control of a key input leads to a single-firm industry.
B) increasing marginal returns and the ability to obtain quantity discounts from suppliers leads to a single-firm industry.
C) economies of large-scale production are substantial, leading to a single-firm industry.
D) the government restricts entry that leads to a single-firm industry.

Question 78

Which of the following statements about natural monopoly is correct?

A) Governments regulate natural monopolies in order to ensure that costs of production are minimized.
B) Governments regulate natural monopolies in order to ensure that the firm earns a normal profit.
C) Governments regulate natural monopolies in order to prevent them from making profits.
D) Governments regulate natural monopolies in order to keep their workers from earning wages that are too high.

Question 79

If a natural monopolist is unregulated, then

A) the monopoly will produce efficiently from society's point of view.
B) the monopoly will produce inefficiently from society's point of view.
C) the monopolist will be earning just a normal rate of return on investment.
D) the monopolist will determine the profit maximizing quantity by equating marginal cost to the demand curve.

Question 80

For a natural monopoly, long-run average costs

A) fall as output increases.
B) rise as output increases.
C) fall as output falls.
D) rise as output falls.