Deck 10: Regulation: Law, Economics, and Politics

Question 1

Regulation takes place through a private process that is relatively closed and low-profile.

Answer 1

False

Question 2

The Fifth and Fourteenth Amendments provide the authority for regulation.

Answer 2

False

Question 3

Interested parties can participate in both formal and informal rule-making proceedings but are unable to attempt to influence agency actions outside the proceedings.

Answer 3

False

Question 4

Federal law delegates the implementation of federal regulations such as environmental issues or health issues to the states.

Question 5

Independent regulatory commissions are immune from Congressional oversight or interference in their affairs.

Question 6

Substantial economic inefficiency is an inherent consequence of a natural monopoly.

Question 7

The market imperfection perspective is grounded in political economy theory.

Question 8

Regulation is not always intended to correct market imperfections but instead can be the result of political forces that serve objectives other than economic efficiency.

Question 9

Asymmetric information results in market efficiency when it is in the self-interest of its possessor not to supply it.

Question 10

When there are market imperfections, government intervention could improve its efficiency.

Question 11

A natural monopoly occurs if having more than one supplier would result in an uneconomical duplication of facilities.

Question 12

Private interests affect regulatory agencies directly through their participation in hearings and other regulatory proceedings and indirectly through pressure on Congress and the executive branch.

Question 13

Although regulation is one response to moral hazard problems, but regulation can also cause moral hazard problems.

Question 14

A pharmaceutical company does not mention all the side-effects of its new medical formulation. This is an example of moral hazard problem.

Question 15

Even when there are advantageous trades that could be made, market imperfections can arise when people have different information at the time they act.

Question 16

The executive branch can influence regulatory commissions through the policy expertise of cabinet agencies.

Question 17

Private sector is does not supply public goods.

Question 18

Government intervention to deal with market imperfections or failure may itself be subject to a nonmarket failure.

Question 19

A natural monopoly results when costs are increasing in the scale of output or in the scope of the set of goods a firm produces.

Question 20

Natural monopolies provide an efficiency rationale for regulation to align private and social costs.

Question 21

Which of the following statements is true of the nonmarket environment of regulatory agencies?

A) Commissioners and administrators of regulatory agencies do not require Senate confirmation.
B) Private interests affect regulatory agencies indirectly through pressure on Congress and the executive branch.
C) Congress can indirectly revise and block changes in statues.
D) The president cannot review regulations to influence regulatory agencies.

Question 22

The progressive era of major regulatory change focused on the ________.

A) introduction of social regulation
B) introduction of economic deregulation to several industries
C) extension of regulation to labor markets and industries
D) regulatory bodies at the state level and extension to federal level

Question 23

In natural monopoly, ________ is the economic inefficiency caused by the restriction of output which raises product prices above its marginal costs.

A) moral hazard
B) deadweight loss
C) externalities
D) consumer surplus

Question 24

________ Amendment places a limit on the application of regulation.

A) First
B) Fourteenth
C) Eighth
D) Nineteenth

Question 25

Which of the following statements is true of regulation?

A) It is implemented through judicial institutions.
B) It is based on legislatively enacted statutes.
C) It is not implemented by independent commissions.
D) It takes place through a private process.

Question 26

________ is present when the actions of one economic agent affect other economic agents through changes in the prices of goods and services.

A) Natural monopoly
B) Asymmetric information
C) Pecuniary externalities
D) Nonpecuniary externalities

Question 27

Which of the following regulatory agencies is not located in a cabinet department?

A) Environmental Protection Agency
B) Federal Aviation Administration
C) Occupational Health and Safety Administration
D) Food and Drug Administration

Question 28

A(n) ________ results when costs are decreasing in the scale of output or in the scope of the set of goods a firm produces.

A) moral hazard
B) asymmetric information
C) pecuniary externality
D) natural monopoly

Question 29

Which of the following institutions does not implement regulation?

A) judicial institutions
B) National Labor Relations Board
C) independent commission
D) agencies of the executive branch

Question 30

The fourth period of major regulatory change which started in the 1970s focused on the ________.

A) introduction of social regulation
B) introduction of economic deregulation to several industries
C) extension of regulation to labor markets and industries
D) regulatory bodies at the state level and extension to federal level

Question 31

Regulation is rarely used for public purposes or to accomplish fairness goals as it requires long term policies.

Question 32

From the perspective of Chicago school economists, regulation initially will be found where there are market imperfections and over time will evolve to serve the interests of the regulated industry.

Question 33

Which of the following approaches can aid in influencing regulatory agency decisions?

A) boycott
B) bribery
C) organizational learning
D) lobbying

Question 34

Firms seek federal regulations to avoid states imposing uniform regulations.

Question 35

Congress enacted the ________ to provide for public notice and comment prior to agency action.

A) National Industrial Recovery Act
B) Sherman Antitrust Act
C) Administrative Procedures Act of 1946
D) Interstate Commerce Act of 1887

Question 36

Regulatory decisions are required to bear a relationship to a proper public purpose under the Constitution. This is review under the framework of ________.

A) procedural due process
B) substantive due process
C) arbitrary regulatory actions
D) capricious regulatory actions

Question 37

The Congress exerts great influence on the regulatory agencies by ________.

A) using its budgetary and oversight authorities
B) appointing the regulatory agencies administrators
C) using the Office of Management and Budget (OMB)
D) delegating policymaking to agencies

Question 38

The major focus of the third phase of regulation in the 1960s was ________.

A) labor and economic regulation
B) economic deregulation
C) political regulation
D) social regulation

Question 39

The political economy theory views regulation as shaped by market imperfections, institutions and their officeholders, and the nonmarket action of private interests.

Question 40

Regulation is also supplied in response to the demands of interest groups other than business.

Question 41

______ occurs when one group of customers pays more and another group pays less than the cost of providing their service.

A) Deadweight loss
B) Free-riding
C) Moral hazard
D) Cross-subsidization

Question 42

Discuss the political economy theory of regulation.

Question 43

Discuss the roles of regulation.

Question 44

________ is a market imperfection that results when sellers have incomplete information about customers.

A) Adverse selection
B) Pecuniary externality
C) Nonpecuniary externality
D) Deadweight loss

Question 45

Which of the following goods is provided by the government to redistribute income rather than because they are public goods?

A) landsat satellite system
B) public housing
C) radio and television broadcasts
D) national defense

Question 46

Regulation in the mobile phone industry was sought in part to serve the interests of incumbent firms and increase the profit margin by regulating prices and entry of new firms. This is an example of ________.

A) deadweight loss
B) moral hazard
C) capture theory
D) rent-seeking theory

Question 47

Courts could review regulatory actions for whether they are arbitrary or capricious. Explain briefly.

Question 48

________ predicts that regulation initially will be found where there are market imperfections and over time will evolve to serve the interests of the regulated industry.

A) Adverse selection
B) Asymmetric information
C) Capture theory
D) Rent-seeking theory

Question 49

What are the two theories to explain where regulation is and is not imposed?

Question 50

Write a short note on the different means to deal with market imperfections in the case of moral hazards.

Question 51

A leading airline firm increases the airfare for its business and first class passengers on high-density routes. This aids in reducing the prices for economy class passengers on low-density routes. This is an example of ________.

A) cross-subsidization
B) moral hazard
C) redistribution of wealth
D) deadweight loss

Question 52

GlObe-dOt is a leading manufacturer of information display systems based in California. It seeks uniform federal regulation to impose a carbon emission tax on all manufacturing firms. This is an example of ________.

A) natural monopoly
B) rent-seeking theory
C) capture theory
D) moral hazard

Question 53

________ are only a necessary condition for regulation to improve economic efficiency.

A) Market imperfections
B) Nonmarket issues
C) Corporate campaigns
D) Grassroots campaigns

Question 54

Which of the following situations reflects a nonpecuniary externality?

A) A chain of retail stores opens in an area which increases the demand and price of labor.
B) The sudden steep rise in oil prices lead to the enactment of a complex regulatory system which instead stimulates the demand for oil.
C) Toxic waste from a chemical manufacturing firm pollutes the water supply for a meat packaging industry in the area.
D) Toxic waste from a chemical manufacturing firm pollutes the water supply in the area which leads to a steep fall in real estate prices in the area.

Question 55

________ refers to inefficient actions induced by policy instruments that cause people not to bear the full consequences of their actions.

A) Adverse selection
B) Moral hazard
C) Externalities
D) Natural monopoly