Deck 19: Antitrust and Regulation

Question 1

The antitrust laws in the United States were created in the late 1800s as a result of :

A)the emergence of large and dominant businesses in railroads, steel, oil, mining and finance.
B)the government decision to take responsibility for the improvement of trade deficit.
C)the first illegal cartel, created in late 1800s.
D)a steep decline in prices of primary goods in the United States.
E)the United States being threatened by an external aggression.

Answer 1

the emergence of large and dominant businesses in railroads, steel, oil, mining and finance.

Question 2

Antitrust policy is used to describe government policies and programs that are designed to:

A)promote the creation of trusts, or combinations of independent firms.
B)control the growth of monopoly and enhance competition.
C)deal with the threat of competitive practices to public interests.
D)create an environment in which the government will distrust firms.
E)create an environment in which firms will distrust the government.

Answer 2

control the growth of monopoly and enhance competition.

Question 3

Which of the following is true of the per se rule?

A)The per se rule was used by U.S.courts from 1914 until the 1920s.
B)The per se rule had the effect of making antitrust policy more liberal.
C)According to the per se rule, activities that were potentially monopolizing tactics were illegal.
D)The per se rule did not allow the mere existence of anticompetitive activities to be sufficient evidence for a guilty verdict.
E)The per se rule was revived by Bush administration.

Answer 3

According to the per se rule, activities that were potentially monopolizing tactics were illegal.

Question 4

The first phase of antitrust policy in the U.S.began with the passage of the Sherman Antitrust Act in 1890.To judge a firm's action, the courts in this period used:

A)a per se rule.
B)a rule of reason.
C)a rule of thumb.
D)the 80-20 rule.
E)strict enforcement rule.

Question 5

Which of the following laws was enacted to forbid monopolization and attempts to monopolize?

A)The Anti-Monopoly Act
B)The Sherman Antitrust Act
C)The Clayton Antitrust Act
D)The Federal Trade Commission Act
E)The Celler-Kefauver Act

Question 6

The judicial doctrine, being a monopoly or attempting to monopolize is not in itself illegal;to be illegal, an action had to be shown to have negative economic effects, is called:

A)the "big is bad" policy.
B)the per se rule.
C)predatory price-cutting policy.
D)the rule of law.
E)the rule of reason.

Question 7

Which of the following are the three laws that define the U.S government's approach to antitrust?

A)The Wilmington, Jackson, and International Trade Commission Acts
B)The Springfield, Clayton, and Trade Commission Acts
C)The Sherman, Clayton, and Federal Trade Commission Acts
D)The Sherman, Jackson, and Regional Trade Commissions Acts
E)The Jackson, Charleston and Sherman Monopoly Restrictive Trade Acts

Question 8

A market is said to be concentrated when:

A)the degree of competition in the market increases.
B)many firms supply to a small number of consumers.
C)the firms producing identical goods are clustered in a particular location.
D)a firm or a few firms are able to dictate the competitive conditions in a market.
E)there is a huge immigration of workers from neighboring areas.

Question 9

The most reliable measure of market concentration is:

A)the Cost of Living index.
B)the Herfindahl index.
C)the Market index.
D)the Market-Value weighted index.
E)the Wholesale Price index.

Question 10

In an antitrust lawsuit, which of the following parties is entitled to receive treble damages?

A)The Antitrust Division of the Justice Department
B)The Federal Trade Commission
C)Private plaintiffs
D)Defendants
E)The Department of Labor

Question 11

Which of the following practices is restricted by the antitrust laws of the United States?

A)Merger of smaller firms into a large firm
B)Entry of new firms in the long run
C)Standardization of products in a market
D)Exit of non-performing firms in the long run
E)Quality differentiation by competitive firms

Question 12

The three phases of antitrust policy in the United States since 1890 are:

A)1890 to 1914, the rule of reason;1914 to the early 1980s, per se;since then, the rule of reason.
B)1890 to 1914, per se;1914 to the early 1980s, the rule of reason;since then, per se.
C)1890 to 1914, the rule of reason;1914 to the early 1980s, per se;since then, no antitrust policy.
D)1890 to 1914, the rule of reason;1914 to the early 1980s, per se;since then, a period of rate of return regulation.
E)1890 to 1914, the rule of reason;1914 to the early 1980s, per se;since then, a period of nationalization.

Question 13

Which of the following does the Sherman Antitrust Act forbid?

A)Monopolization or attempts to monopolize
B)All types of price discrimination
C)Unfair or deceptive acts
D)Unfair methods of competition
E)Practices that might keep other firms from entering into an industry

Question 14

Which of the following is true of Antitrust policy?

A)Antitrust policy prohibits agreements that allow free trade.
B)Antitrust policy restricts abusive behavior by a firm dominating a market.
C)Antitrust policy allows anti-competitive practices.
D)Antitrust policy encourages establishment of monopoly firms.
E)Antitrust policy creates trade barriers like tariffs and quota.

Question 15

The Justice Department of the U.S.classifies the industries on the basis of the Herfindahl index as:

A)below 500: highly competitive;500-1000: moderately competitive;above 1000: highly concentrated.
B)below 1000: highly competitive;1000-1500: moderately competitive;above 1500: highly concentrated.
C)below 500: highly competitive;500-1500: moderately competitive;above 1500: highly concentrated.
D)below 1000: highly competitive;1000-1800: moderately competitive;above 1800: highly concentrated.
E)below 1500: highly competitive;1500-2000: moderately competitive;above 2000: highly concentrated.

Question 16

Which of the following is most likely to happen if the Federal Trade Commission (FTC)wins a suit against alleged violators of antitrust law?

A)The FTC will receive compensation up to three times the damage caused.
B)The FTC will not be able to impose substantial penalties.
C)The FTC will force firms to break up through dissolution.
D)The FTC will force firms to merge together.
E)The FTC will file criminal actions that may result in fines but not prison sentences.

Question 17

Which of the following entities is able to sue a firm for alleged antitrust misbehavior in the U.S.?

A)Department of Illegal Affairs
B)Department of State
C)Department of Homeland Security
D)Department of Justice
E)Department of Labor

Question 18

Under George W.Bush's administration, antitrust policy:

A)became much more strict.
B)prohibited every merger attempts.
C)focused increasingly on environmental concerns.
D)became more relaxed.
E)ignored financial regulation and corporate scandals.

Question 19

Which of the following practices is notrestricted by the antitrust law in the United States?

A)Contracts and conspiracies in restraint of trade
B)Attempts to monopolize a market
C)Mergers that substantially lessen competition
D)Unfair or deceptive acts of competition
E)All forms of quality discrimination

Question 20

Under the second phase of antitrust policy that began in 1914 in the U.S. , the courts used _____ in order to judge the firms' actions.

A)a rule of reason
B)the rule of 72
C)a rule of thirds
D)a per se rule
E)the rule of law

Question 21

A Herfindahl index of 5, 000 would indicate:

A)a monopoly.
B)a duopoly (two firms)with equal shares.
C)an oligopoly with three firms.
D)a monopolistically competitive industry.
E)a perfectly competitive market.

Question 22

When regulators require that a natural monopoly sets price equal to average total cost:

A)it is said to be allowing a fair rate of return.
B)the firm earns a super normal profit.
C)the firm shuts down permanently.
D)the firm operates at the profit-maximizing level of output.
E)the firm shuts down temporarily.

Question 23

A regulated firm may have an incentive to spend an inefficiently high amount on capital when:

A)it becomes deregulated.
B)fair rate of return regulation is used.
C)regulators set price equal to marginal cost.
D)it is part of a monopolistically competitive industry.
E)it is allowed to charge a monopoly price.

Question 24

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

A)Economic regulation has little to do with price and output while social regulation explicitly deals with price and output.
B)Social regulation is concerned with directly redistributing wealth while economic regulation is concerned with accumulation of wealth.
C)Economic regulation is concerned with directly redistributing wealth while social regulation is concerned with accumulation of wealth.
D)Social regulation has historically targeted industries such as railroads and airlines while economic regulation has all the industries under its purview.
E)Economic regulation deals with price and output , while social regulation deals with health and safety matters that apply across several industries.

Question 25

Which of the following statements is true of price fixing?

A)It represents a high level of competition in an industry.
B)It is allowed only under the provisions of the Federal Trade Commission Act.
C)It is, by definition, illegal, as there is no justification for it.
D)It occurs only in monopolistically competitive industries.
E)It is legal in United States.

Question 26

The figure below shows revenue and cost curves of a natural monopoly firm. Figure 12.1 In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
Refer to Figure 12.1.Identify the fair-rate-of-return price.

A)P₅
B)P₂
C)P₄
D)P₁
E)P₃

Question 27

One reason that governments may intervene in the operation of a business through regulation is to:

A)increase monopoly profits.
B)reduce the amount of information consumers have about a product.
C)increase negative externalities.
D)promote competitive behavior.
E)decrease positive externalities.

Question 28

A market that is shared equally by 100 firms would have a Herfindahl index of :

A)1.
B)1, 000.
C)500.
D)100.
E)50.

Question 29

A monopolistic industry will have a Herfindahl index value of:

A)1.
B)100.
C)500.
D)1000.
E)10.

Question 30

The figure below shows revenue and cost curves of a natural monopoly firm. Figure 12.1 In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
According to Figure 12.1, to attain allocative efficiency the regulatory body must attempt to set the price equal to:

A)P₂.
B)P₃.
C)P₁.
D)P₄.
E)P₅.

Question 31

One necessary step in demonstrating monopolistic behavior is to define the market.In this process defendants would:

A)claim that the market was not in equilibrium.
B)want the market defined as narrowly as possible.
C)deny that a market existed.
D)assert that the market was not stable.
E)want the market defined as broadly as possible.

Question 32

A Herfindahl index value of 20 for a particular industry indicates that the industry is most likely to be:

A)perfectly competitive.
B)highly concentrated.
C)oligopolistic.
D)monopolistic.
E)made up of illegal firms.

Question 33

Consider a market consisting of seven firms with market shares of 40, 20, 10, 10, 8, 7, and 5 percent, respectively.Which of the following statements is true?

A)The four-firm concentration ratio would be 0.03.
B)The Herfindahl index would be 1, 000.
C)The Herfindahl index would be 2, 228.
D)The Herfindahl index would be 1, 500.
E)The Herfindahl index would be 2, 338.

Question 34

The figure below shows revenue and cost curves of a natural monopoly firm. Figure 12.1 In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
Refer to Figure 12.1.The natural monopolist will charge a price equal to:

A)P₄.
B)P₃.
C)P₂.
D)P₁.
E)P₅.

Question 35

Which of the following was formed in October 2001 to make the national antitrust laws more consistent across the developing and developed countries of the world?

A)International Cooperation Network
B)International Competition Network
C)International Communication Network
D)International Competition Organization
E)International Communication Organization

Question 36

In the United States, monopoly regulation began primarily because:

A)there were no natural monopolies in the real world.
B)monopolies were especially guilty of unsafe industrial practices.
C)monopolies did not typically follow occupational and safety rules.
D)monopolies tended to restrict output and raise prices.
E)most economists believed that the majority of industries were following the purely competitive model.

Question 37

The figure below shows revenue and cost curves of a natural monopoly firm. Figure 12.1 In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
According to Figure 12.1, the price under perfect competition will be:

A)P₁.
B)P₃.
C)P₅.
D)P₄.
E)P₂.

Question 38

Most natural monopolies are regulated at some level by government because:

A)an unregulated natural monopolist would produce an inefficiently low level of output.
B)an unregulated natural monopolist would produce only for government bureaucrats.
C)an unregulated natural monopolist would charge an inefficiently low price in the market.
D)an unregulated natural monopolist would charge an inefficiently high price in the market.
E)an unregulated natural monopolist would produce a large quantity at a high price.

Question 39

Consider an oligopoly that has two firms, one with a 75 percent market share and the other with a 25 percent market share.The Herfindahl index for this market is:

A)5, 625
B)6, 250
C)625
D)5, 000
E)8, 500

Question 40

The figure below shows revenue and cost curves of a natural monopoly firm. Figure 12.1 In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
Refer to Figure 12.1.If the regulatory agency sets the fair-rate-of-return price, the monopolist will:

A)suspend production.
B)just break even.
C)earn super normal profits.
D)incur losses.
E)be able to cover only the variable costs.

Question 41

To avoid driving a natural monopolist into bankruptcy, regulatory commissions:

A)allow the monopolist to enjoy an economic profit.
B)do not allow the monopolist to make an accounting profit.
C)subsidize the monopolist to help it break even.
D)allow the monopolist to earn a fair rate of return.
E)allow the monopolist to temporarily shut down.

Question 42

An example of the opportunity costs involved with social regulation would be:

A)the monetary costs of hiring administrative assistants to fill out OSHA safety reports.
B)the environmental costs of pollution control required under the Clean Air Act.
C)the monetary costs of laboratory trials required to try out a new drug.
D)the lives that are lost because new drugs are not introduced quickly enough.
E)the monetary cost of manufacturing a life saving drug.

Question 43

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation. Figure 12.2 In the figure,
D: Demand curve for automobiles
S₁: Supply curve of automobiles prior to regulation
S₂: Supply curve of automobiles after regulation
FG: Clean up cost per unit
What is the total societal surplus prior to regulation described in Figure 12.2?

A)Area 0FGQ₁.
B)Area BEP₁.
C)Area CEP₁.
D)Area FGEP₁.
E)Area BEC.

Question 44

The argument made in favor of privatization is:

A)that the government can make more money with which to pay off its debts.
B)that the private sector can only make zero economic profit.
C)that the private sector will operate more efficiently than the public sector.
D)that the government can devote more time to administrative matters.
E)the government can keep a track of the activities of the private sector.

Question 45

If social regulation increases a firm's fixed and variable costs:

A)then both marginal cost and average total cost will increase, and the firm will produce more.
B)then both marginal cost and avetage total cost will increase, and the firm will produce less.
C)then both marginal cost and average total cost will decrease, and profits will increase.
D)Marginal cost will increase, average total cost will be constant, and price will decline.
E)both price and quantity produced will fall.

Question 46

When regulating a natural monopoly, government officials face a dilemma that:

A)the efficient price may not allow the firm to break even.
B)the efficient price may lead to an inefficiently high level of output.
C)the efficient price leads to an output level that is too low.
D)the efficient price may not allow the firm to enjoy positive profits.
E)long-run average costs are constantly increasing.

Question 47

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation. Figure 12.2 In the figure,
D: Demand curve for automobiles
S₁: Supply curve of automobiles prior to regulation
S₂: Supply curve of automobiles after regulation
FG: Clean up cost per unit
Refer to Figure 12.2.The regulation will benefit the society if:

A)area BAJ > area 0FIQ₂.
B)area AECJ > area IGQ₁Q₂.
C)area IGQ₁Q₂ > area AECJ.
D)area BAJ > BAC.
E)area 0FIQ₂ > area BAJ.

Question 48

Which of the following raises the economic freedom of a country:

A)Limited international movement of productive resources
B)Higher taxes
C)Red-tapism and bureaucracy
D)Reduction of trade barriers like tariffs and quotas
E)Reduction of government subsidies on gasoline

Question 49

If social regulation causes the supply curve in a market to shift up because of higher marginal costs, then:

A)both consumer and producer surplus will decrease.
B)both producer and consumer surplus will increase.
C)consumers will gain at the expense of producers.
D)producers will gain at the expense of consumers.
E)there will be no change in the sum of producer and consumer surplus, although its division may change.

Question 50

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation. Figure 12.2 In the figure,
D: Demand curve for automobiles
S₁: Supply curve of automobiles prior to regulation
S₂: Supply curve of automobiles after regulation
FG: Clean up cost per unit
According to Figure 12.2, the total societal surplus after the regulation is:

A)area BEC.
B)area AECJ.
C)area IGQ₁Q₂.
D)area 0FIQ₂.
E)area BAJ.

Question 51

Suppose that the demand for apples in Washington is elastic and the supply is inelastic.If the government of Washington passes a law prohibiting the use of synthetic pesticides that increases the marginal and average costs of producing apples, then:

A)the price of Washington State apples will decline.
B)Washington will stop producing apples, and New York apple growers will benefit.
C)apple growers will pass most of the increased costs on to consumers in the form of higher apple prices.
D)apple growers will keep prices constant but reduce costs by advertising less.
E)apple growers will bear most of the increased costs of regulation, and prices will increase only slightly.

Question 52

Which of the following calculations is necessary to determine whether a regulation should be implemented?

A)Marginal cost-marginal revenue calculations
B)Cost effectiveness calculations
C)Total cost-total revenue calculations
D)Cost minimization calculations
E)Cost-benefit calculations

Question 53

Cities and local governments in the United States have contracted out many services in the recent years.It implies that:

A)government has taken over the ownership of many firms in the service sector.
B)private firms are now providing certain services for a government entity.
C)government has surrendered its ownership of public assets to private individuals.
D)the government is the sole purchaser of certain services provided by the private firms.
E)the government has borrowed funds from large private firms.

Question 54

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation. Figure 12.2 In the figure,
D: Demand curve for automobiles
S₁: Supply curve of automobiles prior to regulation
S₂: Supply curve of automobiles after regulation
FG: Clean up cost per unit
According to Figure 12.2, the total clean up cost for the society prior to regulation is:

A)area 0BEQ₁.
B)area 0FIQ₂.
C)area 0FGQ₁.
D)area 0P₁EQ₁.
E)area 0CEQ₁.

Question 55

Graphically, consumer surplus is the area:

A)above the demand curve.
B)below the supply curve.
C)under the demand curve and above the supply curve.
D)above the market supply curve and under the equilibrium price.
E)under the market demand curve and above the equilibrium price.

Question 56

Which of the following factors helps to determine how the costs of social regulation are split between consumers and producers.

A)The price elasticities of demand and supply
B)The quantity produced by the firm
C)The average total costs of the firm before regulation
D)The number of consumers in the market
E)The number of producers in the market

Question 57

Why was trucking deregulated in the U.S.in the 1980s?

A)There was an acute shortage of trucks.
B)The truckers were making huge profits.
C)A significant percent of all truck-miles were logged by empty trucks.
D)The truckers were engaged in black marketing.
E)The rates charged by the truckers were exorbitantly high.

Question 58

If a market becomes deregulated and is forced to change from monopoly to competition, the monopolist may be stuck with costly assets for which no returns are possible.These assets are known as:

A)monopoly assets.
B)market assets.
C)non-returnable assets.
D)stranded assets.
E)sunk assets.

Question 59

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation. Figure 12.2 In the figure,
D: Demand curve for automobiles
S₁: Supply curve of automobiles prior to regulation
S₂: Supply curve of automobiles after regulation
FG: Clean up cost per unit
According to Figure 12.2, the total clean up cost after the regulation is:

A)area 0FIQ₂.
B)area 0FGQ₁.
C)area BEC.
D)area BEP₁.
E)area BEGF.

Question 60

Why do the regulated companies oppose deregulation?

A)They are thrown out of the market.
B)They are deprived of their rights to continue business.
C)They are denied every kind of support from the government.
D)They would incur losses on account of increased competition.
E)They would become unpopular as no longer they would be controlled by the government.

Question 61

Actions against alleged violators of the antitrust statutes may be initiated by the Justice Department, by the Federal Trade Commission, and by private plaintiffs.

Question 62

If the Herfindahl index for automobiles take foreign competition into account, the Herfindahl index for the U.S.automobile industry would be significantly higher.

Question 63

Delegates from different countries of the world met at Geneva in April 1947 which resulted in the formation of the first global trade agreement.Its main objective was:

A)to create multiple trade barriers in the member countries.
B)to enable the member countries to maintain their autarkic conditions.
C)to provide security to the domestic producers of the member countries by prohibiting international trade.
D)to create an atmosphere of economic rivalry in the international sphere.
E)to liberalize trade for mutual prosperity of the members.

Question 64

Which of the following is true ofthe General Agreement on Tariffs and Trade (GATT)?

A)It is now called the World Agreement on Trade and Tariffs.
B)It was the global trade agreement that did away with the gold standard.
C)It was a United States' policy to raise tariffs on imported sugar.
D)It was the first global trade agreement that followed World War II.
E)It was a global trade agreement to raise tariffs.

Question 65

Although the GATT was supported by most of the countries of the world, yet global trade shrank during the close of the last decade.This was due to:

A)growing suspicion among the nations of the world.
B)hyperinflation in the major economies of the world.
C)the recession which began in 2007.
D)political turmoil in the Asian countries.
E)the desire among the major players to dominate the international market.

Question 66

According to the Index of Economic Freedom, which of the following is the freest economy in the world?

A)Cuba
B)Zimbabwe
C)Hong Kong
D)North Korea
E)Libya

Question 67

Which of the following isnot a component of the index which measures economic freedom of a country?

A)Monetary freedom
B)Cultural freedom
C)Government size
D)Freedom from corruption
E)Labor freedom

Question 68

Under the License Raj system in India:

A)the producers having the licence could produce as much as they wanted.
B)the producers were allowed to manufacture goods only for the government.
C)only the producers having the licence were allowed to import inputs from abroad.
D)producing beyond the specified limit was a punishable offence.
E)the producers could only produce to meet their subsistence needs.

Question 69

According to the per se rule, activities that were potentially monopolizing tactics were illegal.

Question 70

If there are 50 firms in the industry, and each have an equal market share, the Herfindahl index will be equal to 1, 00, 000.

Question 71

Antitrust laws in the United States rely more on economic theory and the rule of reason approach, whereas the European Union relies more on the per se approach.

Question 72

Being a monopoly or attempting to monopolize act as sufficient evidence that lead to a guilty verdict under the rule of reason.

Question 73

Monetary freedom refers to:

A)the ability to create and operate an enterprise easily.
B)the absence of tariff and non-tariff barriers that affect imports of goods.
C)the tax burden and overall tax revenue of the government.
D)price stability with an assessment of price control.
E)the free flow of foreign capital.

Question 74

If the tax rate increases with an increase in the tax base, the tax is said to be:

A)regressive in nature.
B)a progressive tax.
C)a proportional tax.
D)an indirect tax.
E)inequitable in nature .

Question 75

The "buy American" restriction introduced in the U.S.in 2009 required:

A)entities receiving subsidies to invest in American stocks and bonds.
B)entities receiving subsidies to sell their produce only to American consumers.
C)entities receiving subsidies to produce only those goods specified by the U.S.government.
D)entities receiving subsidies to maintain a price for their products as specified by the American government.
E)entities receiving subsidies to purchase resources from American suppliers.

Question 76

Which of the following is a measure of the size of the total economy?

A)Gross domestic product
B)Government debt burden
C)The ratio of imports to exports
D)Stock of inventories
E)The money supply

Question 77

Sherman Antitrust Act bans price discrimination that substantially lessens competition or injures particular competitors.

Question 78

Antitrust policies are a set of measures which are taken to liberate the economy from unnecessary governmental controls.

Question 79

If a market is narrowly defined, the market share of each firm declines than if it is broadly defined.

Question 80

Under the Clinton administration, attempts were made to relax the antitrust enforcement efforts of the Reagan administration.