Deck 11: Price-Searcher Markets With High Entry Barriers

Question 1

In 1903 when air pollution from a Montana smelter owned by the Anaconda Smelting Company destroyed grass and killed some cattle owned by ranchers downwind from the smelter, the ranchers sued for damages and the court

A) ordered the company to pay for the damages caused by its smelter.
B) held the company liable for any future damages caused by its omissions.
C) recognized that the company would pollute less when it was made accountable for the damage caused by its omissions.
D) all of the above.

Answer 1

all of the above.

Question 2

Economic thinking indicates that efficient adaptation strategies to reduce harms from future global warming will

A) focus on reducing overall carbon emissions.
B) emphasize changes like those imposed on prosperous nations by the Kyoto Treaty.
C) focus on reducing the effects of serious problems that we know to exist.
D) ensure that every precaution will be taken to reduce any possible risks for the future.

Answer 2

focus on reducing the effects of serious problems that we know to exist.

Question 3

Which of the following is, so far, the most utilized method to reduce emissions of industrial pollution to politically chosen levels, while encouraging efficient choices by polluters?

A) Government pollution charges or taxes.
B) Non-tradable emission standards that cap allowable pollution for each emitter.
C) Cap and trade emission permits.
D) Regulations that would effectively prohibit all emissions.

Answer 3

Cap and trade emission permits.

Question 4

Which of the following is true about environmental quality?

A) All types of environmental problems can be solved merely by the enforcement of individual property rights.
B) Environmental regulation cannot improve environmental quality.
C) Income levels exert little impact on the demand for environmental quality.
D) Markets often result in outcomes that are inefficient when it is difficult to assign and enforce property rights.

Question 5

The current empirical evidence indicates that

A) changes in the earth's cloud cover will clearly enhance the warming effects of carbon dioxide.
B) the increase in carbon dioxide, over thousands of years, is definitely the cause of global warming.
C) if global warming continues as most models predict, then in the next 100 years the sea levels clearly will rise by more than 10 feet.
D) none of the above is true.

Question 6

Empirical evidence indicates that

A) changes in the earth's cloud cover will clearly enhance the warming effects of carbon dioxide.
B) the increase in carbon dioxide, over thousands of years, is clearly the cause of global warming.
C) if global warming continues for another century, as most models forecast, the sea levels will clearly rise substantially, imposing costs much larger than the cost of preventing the warming.
D) the earth has warmed a little more than one degree Fahrenheit in the past century.

Question 7

Property right enforcement and markets can be imperfect, so environmental regulations are often used to correct market failures that result in environmental damages. But governmental regulation itself can be imperfect because

A) both environmental harms and the benefits of reducing them are uncertain and difficult to measure.
B) regulation overrides the market, and therefore the regulators do not have market information on the costs imposed on damaged parties or those required to reduce the damages.
C) special interests often use the regulatory process to obtain political favors that waste resources and conflict with the stated objectives of the regulation.
D) all of the above are true.

Question 8

Which of the following would illustrate an example that leads to high transaction costs when dealing with pollution?

A) Air quality in New York City.
B) Water pollution caused by a large number of firms at a location near the same river.
C) Noise pollution from aircraft near a busy airport.
D) All of the above.

Question 9

Concerning environmental regulation, which of the following is true?

A) All types of environmental problems can be solved simply by the enforcement of individual property rights.
B) Environmental regulation cannot improve environmental quality.
C) Regulation nearly always leads to economically efficient outcomes.
D) Government regulation is subject to the same problems caused by lack of information and lack of incentives for economic efficiency that plagued centrally planned economies.

Question 10

Which of the following is true about environmental regulation?

A) All types of environmental problems can be solved merely by the enforcement of individual property rights.
B) Environmental regulation cannot improve environmental quality.
C) Income levels exert little impact on the demand for environmental quality.
D) Markets often result in outcomes that are inefficient when it is difficult to assign and enforce property rights.

Question 11

It can be difficult to define and enforce property rights against damaging pollutants when

A) many polluters are harming one person.
B) many polluters harm the same large group of people with the same pollutant.
C) the harms are difficult to quantify.
D) All of the above are true.

Question 12

When is the definition and enforcement of property rights especially difficult?

A) When many polluters harm a large group of people with the same pollutant.
B) When a single polluter is harming a single person or entity.
C) When land is owned by a corporation.
D) When the benefits of prosecution are clear.

Question 13

Government regulation is

A) subject to the same problems of lack of information and lack of incentives for economic efficiency as centrally planned economies.
B) the only reliable way to improve environmental quality.
C) not subject to political concerns when it comes to environmental quality.
D) the most economically efficient way to reduce greenhouse gases.

Question 14

The opportunity cost of slowing global warming by reducing carbon dioxide emissions is

A) extremely high because policies that would significantly reduce emissions will adversely affect economic growth.
B) insignificant compared to the probable impact of warming from those emissions.
C) irrelevant because each aspect of the environment is important enough to justify full protection from environmental change, at whatever cost is necessary.
D) zero because fuel cost savings alone will offset all opportunity costs.

Question 15

Which of the following is an example of a deficiency caused by a regulatory approach to pollution?

A) Ignored information provided by market signals.
B) Special interest influence on policies.
C) Lack of accountability by regulators for costs of regulation.
D) All of the above.

Question 16

When it is difficult to assign and enforce property rights,

A) markets result in outcomes that are often inefficient.
B) courts can easily negotiate efficient outcomes.
C) establishing better property rights is always the best way to deal with environmental problems.
D) government regulation can never improve on the outcomes generated by competitive markets.

Question 17

When it comes to environmental policy,

A) choices are influenced by the costs and benefits that decision makers expect.
B) values are subjective, as in other areas of the economy.
C) policy choices often have unintended secondary effects.
D) all of the above are true.

Question 18

When is the definition and enforcement of property rights especially difficult?

A) When many polluters harm a large group of people by emitting the same pollutant.
B) When a single polluter is harming a single person or entity.
C) When land is owned by a corporation.
D) When the benefits of prosecution are clear.

Question 19

Which of the following most accurately reflects the pattern of changes in the earth's temperature?

A) The earth's temperature has risen by approximately 3 degrees Fahrenheit during the past century and most of the increase has occurred since 2000.
B) The earth's temperature has fallen by approximately 2 degrees Fahrenheit during the past century.
C) The earth's temperature has risen by approximately 1.4 degrees Fahrenheit during the past century.
D) There has been virtually no change in the earth's temperature for at least the past 1000 years.

Question 20

The burning of fossil fuels may cause global warming. Considering both the science and the reactions of crops, human health, and other factors across differing climates, economists generally agree that

A) to protect the interests of future generations, the buildup of carbon dioxide must soon be stopped.
B) any climate change, if it actually occurs, will be extremely costly.
C) there will be both costs and benefits if the climate warms.
D) all people will be worse off if the climate warms.

Question 21

Pollution charges will be efficient if

A) the charge is just equal to the cost borne by others from the pollution.
B) the charge is greater than the cost borne by others from the pollution.
C) the charge is less than the cost borne by others from the pollution.
D) none of the above.

Question 22

An economist would argue that global warming is

A) unquestionably a human-generated problem that should be stopped immediately at all costs.
B) simply fear mongering, for there is no scientific evidence that the average temperature on earth is changing.
C) likely to cause massive starvation as temperatures on earth rise, reducing agricultural productivity.
D) a serious issue that may best be addressed primarily by making changes as problems occur in the future.

Question 23

Regarding wealth and environmental quality,

A) richer people are more willing to make sacrifices to gain greater environmental quality.
B) poor nations are less resilient when faced with the threats caused by environmental degradation.
C) richer people are more able to make sacrifices to gain greater environmental quality.
D) all of the above

Question 24

Pollution from a privately owned factory that seriously harms a privately owned forest will, if property rights are strongly protected,

A) not result in penalties to the polluter, who has a right to use his property as he wishes.
B) make the polluter liable for any damages done to the forest.
C) be ignored under the law, in favor of the polluting factory owner.
D) never occur.

Question 25

Which of the following is the most efficient method to reduce pollution emissions?

A) Government pollution charges or taxes.
B) Non-tradable emission standards that cap allowable pollution.
C) Common law enforcement of property rights, when those rights are well-defined and transaction costs are low.
D) Legislated regulations limiting the quantity of emissions allowed by each firm.

Question 26

Higher levels of carbon dioxide may have led, over the past century, to approximately a

A) 1 degree (F) warming of the earth.
B) 10 degree (F) warming of the earth.
C) 1 degree (F) cooling of the earth.
D) 10 degree (F) cooling of the earth.

Question 27

Most of our environmental problems exist because of

A) a lack of enforced and easily traded property rights.
B) consumer ignorance.
C) profit maximization on the part of business firms.
D) the failure of political officials to regulate business activities.

Question 28

"Since the wind and the flowing rivers can take away industrial waste without charge, polluting is a profitable activity even when people are seriously harmed downwind or downstream, unless environmental regulators stop it." This statement is

A) false if the property rights of downwind or downstream individuals are protected.
B) true if the property rights of industrialists are enforced.
C) never true.
D) always true.

Question 29

Which of the following is the most efficient way to reduce pollution emissions?

A) Emission standards that cap allowable pollution.
B) Government pollution charges or taxes.
C) Legislated regulations limiting the quantity of emissions allowed by each firm.
D) Enforcement of property rights, when those rights are well-defined and transaction costs are low.

Question 30

Providing citizens with enforceable property rights to resources

A) increases resource conservation and decreases wasteful resource use.
B) promotes economic prosperity and thus increases demand for environmental quality.
C) provides people with a strong incentive not to damage the privately owned resources of others.
D) does all of the above.

Question 31

The scientific evidence on the causes and consequences of global warming

A) is clear and indisputable.
B) has considerable uncertainty in its findings.
C) indicates global warming should be stopped regardless of cost.
D) is of no importance to economists.

Question 32

Which of the following will likely have the strongest demand for large expenditures on environmental quality?

A) Wealthy countries.
B) Poor countries.
C) Countries with air pollution problems.
D) Countries with water pollution problems.

Question 33

For a privately owned business in a competitive market setting,

A) reducing resource use while producing the same output adds to profit and typically reduces waste products and thus cuts pollution as well.
B) when property rights are well-defined and strictly enforced, the firm will be able to pollute air and water without having to bear the cost of the damages imposed on others.
C) wasteful use of resources results in more pollution but greater profit.
D) reducing pollution almost never pays.

Question 34

Economic analysis indicates that environmental quality

A) is something that people value, and therefore are willing to pay for.
B) should always be regulated by the government.
C) is something people should be forced to pay for no matter what their income levels.
D) is not important to most people.

Question 35

Economic analysis implies that one of the most effective ways to deal with potential damages from environmental pollution is to

A) declare the relevant resources to be public goods, owned by the public.
B) establish and enforce property rights for the resources that are being damaged, if possible.
C) allow the government to take over and control all natural resources.
D) enact legislation that makes all environmental pollution illegal.

Question 36

Environmental regulation by the government

A) leads to ideal outcomes in most cases.
B) is often based on goals for pollution levels that were determined by market signals.
C) is most appropriate when the pollution of concern comes from many sources.
D) is most likely to be economically efficient when the regulation provides substantial benefits for special-interest groups.

Question 37

Overfishing in the ocean often

A) is easily solved by shortening the fishing season.
B) is not caused by better technologies, which today's fishers would not use if they harmed the resource.
C) occurs only when regulators fail to regulate due to corruption.
D) is caused by many boats racing to catch more fish in a very short season.

Question 38

What is the economically efficient level of emissions from a particular source?

A) Zero.
B) The quantity at which the marginal cost to achieve lower emissions equals the additional value of reducing pollution.
C) The level determined by EPA (Environmental Protection Agency) scientists that will save the most lives.
D) The level emitted when markets are allowed to function with no government regulation.

Question 39

Which of the following is the most efficient way to reduce pollution emissions?

A) Emission standards that cap allowable pollution.
B) Government pollution charges or taxes.
C) Legislated regulations limiting the quantity of emissions allowed by each firm.
D) Enforcement of property rights, when those rights are well-defined and transaction costs are low.

Question 40

With regard to environmental programs and regulations, economic analysis indicates that

A) environmental quality is something that people value and, therefore, are willing to pay for.
B) people value many other things, but environmental values always come first.
C) income levels exert little impact on the demand for environmental quality.
D) the cost of an environmental policy matters little if the policy provides environmental health benefits.

Question 41

A monopolist will maximize profits by

A) setting the price at the level that will maximize per-unit profit.
B) producing the output where marginal revenue equals total cost and charging a price along the demand curve.
C) selling at the price on the demand curve at the output rate where marginal revenue equals marginal cost.
D) producing at the output rate where price equals marginal cost.

Question 42

Government regulation is

A) subject to the same problems of lack of information and lack of incentives for economic efficiency as centrally planned economies.
B) the only reliable way to improve environmental quality.
C) not subject to political concerns when it comes to environmental quality.
D) the most economically efficient way to reduce greenhouse gases.

Question 43

Oligopolistic agreements on price tend to be unstable because

A) although the monopoly price is the best price for all firms, oligopolists are unaware of this and thus charge prices that are lower than the price that could be charged by a monopolists, therefore, decreasing social welfare.
B) although the monopoly price maximizes the joint profits of the firms, a secret price cut by any individual firm will increase the profits of that firm; hence, collusive agreements tend to break down.
C) the demand for the products of oligopolistic industries is inherently unstable relative to the demand for the products of non-oligopolistic industries because demand for products in oligopolistic industries are dependent on changes in consumer tastes and preferences.
D) firms in oligopolistic industries have more concern for consumers than do firms in competitive industries.

Question 44

When economists talk about a barrier to entry, they are referring to

A) a factor that makes it difficult for potential competitors to enter a market.
B) the opportunity cost of equity capital that is incurred by a firm producing at minimum total cost.
C) the downward-sloping portion of the long-run average total cost curve.
D) the declining output experienced as additional units of a variable input are used with a given amount of a fixed input.

Question 45

When a park is funded by visitors, but not by taxpayers in general,

A) there will be too few parks, because most people will not pay to use a park.
B) visitors will be better served, because poor service would lead to reductions in revenues.
C) park budgets will decline.
D) park quality will decline.

Question 46

An oligopolistic market

A) has a small number of rival firms, and each is large relative to the size of the market.
B) is characterized by firms that merely take the price that is determined by the forces of supply and demand in the market.
C) has low entry barriers facing firms that may be interested in entering the market.
D) has a large number of firms that are small relative to the size of the market.

Question 47

Individual transferable quotas (ITQs) have been shown to

A) increase the value of fisheries but reduce the safety of fishers as the season is shortened.
B) end overfishing by making the use of efficient technology illegal.
C) increase the safety of fishing but not the value to consumers of the product.
D) increase the value to consumers of the product and raise the price received by fishers.

Question 48

When natural monopoly is present in an industry, the per-unit costs of production will be

A) lowest when there are a large number of producers in the industry.
B) lowest when a single firm generates the entire output of the industry.
C) lower for small firms than for large firms.
D) minimized at the output that maximizes the industry's profitability.

Question 49

When a park is funded by visitors but not by taxpayers in general,

A) there will be too few parks because most people will not pay to use a park.
B) visitors will be better served because poor service would lead to reductions in revenues.
C) park budgets will decline.
D) park quality will decline.

Question 50

The Endangered Species Act

A) weakened the property rights of landowners.
B) encourages landowners to find new ways to provide habitat for listed species.
C) provides compensation to landowners affected by the law.
D) has not benefited any of the species protected under the act.

Question 51

A monopolist has less to gain from cost-saving measures in the production process when

A) the monopoly is unregulated.
B) regulators use average cost pricing to set the monopolist's price.
C) the demand for the product of the monopolist is inelastic.
D) changes in the regulated price occur only after considerable delay.

Question 52

The fish in the ocean are

A) allocated efficiently because there are no limitations on entry into the ocean fisheries business.
B) scarce, but only because of the highly restrictive regulations imposed by various nations.
C) a commonly owned, open access resource and therefore they are often over-exploited.
D) privately owned and therefore they are allocated efficiently.

Question 53

When the federal government owns parks that are funded by tax dollars,

A) park managers receive full information about visitor desires and make decisions accordingly.
B) the same incentive structure exists for public park managers as private park managers.
C) park managers devote much time and effort to satisfying political desires instead of visitor desires.
D) park managers will be less likely to mismanage the park.

Question 54

When a park is funded by visitors, but not by taxpayers in general,

A) there will be too few parks because most people simply will not pay to use a park.
B) visitors will be better served because poor service would lead to reductions in revenues.
C) maintenance in the park will suffer because budgets will decline.
D) we cannot predict what will happen because park funding by visitors has not been tried before.

Question 55

Which of the following is an effort to establish property rights and promote more efficient allocation of ocean fisheries?

A) Regulations limiting the length of the fishing season.
B) Regulations reducing the size of fishing boats and other equipment used in the industry.
C) Establishment of transferable individual fishing quotas.
D) Complete open access of ocean fishing to anyone who would like to enter the business.

Question 56

When the federal government owns parks that are funded by tax dollars

A) park managers receive full information about visitor desires and make decisions accordingly.
B) the same incentive structure exists for public park managers as private park managers.
C) park managers devote much time and effort to satisfying political desires instead of visitor desires.
D) park managers will be less likely to mismanage the park.

Question 57

Assuming that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

A) The output of the monopolist will be too large and its price too high.
B) The output of the monopolist will be too large and its price too low.
C) The output of the monopolist will be too small and its price too high.
D) The output of the monopolist will be too small and its price too low.

Question 58

Which one of the following is the best description of a monopolist?

A) a firm that produces a single product
B) a firm that is the sole producer of a narrowly defined product class, such as yellow, grade-A butter produced in Wisconsin
C) a firm that is the sole producer of a product for which there are no good substitutes in a market with high barriers to entry
D) a firm that is large relative to its competitors

Question 59

The price charged by oligopolists will

A) equal the equilibrium price in a price-takers market if the oligopolists collude.
B) equal the monopoly price if the oligopolists do not collude.
C) generally fall between the monopoly and competitive market equilibrium prices.
D) be the same whether the oligopolists cooperate with one another or not; only profit is affected.

Question 60

When the federal government owns land resources, such as parks, that are funded by tax dollars,

A) park mangers receive full information about visitor desires simply by asking visitors.
B) public park managers have the same incentives as private park managers, where visitors pay at least the actual costs of use.
C) park managers devote much time and effort to satisfying congressional desires instead of visitor desires.
D) park managers will be well-informed of visitor demands regardless of the funding mechanism.

Question 61

Use the figure to answer the following question(s).
Figure 11-12
Figure 11-12 indicates the industry cost and demand conditions for a product produced in an oligopolistic industry. The price of this product is most likely to be

A) greater than P₂.
B) P₂.
C) P₁.
D) in the range between P₁ and P₂.

Question 62

Figure 11-5
Indicate the maximum profit (or minimum loss) a pure monopolist with the cost and demand conditions depicted in Figure 11-5 would be able to achieve.

A) profit of AIHE
B) profit of BKJC
C) losses of BKJC
D) losses of EHGF

Question 63

When firms use resources in an attempt to secure and maintain grants of market protection from the government, it is called

A) rent-seeking.
B) collusion.
C) franchising.
D) resource investment.

Question 64

Figure 11-4
What output would a monopolist with the demand and cost conditions depicted in Figure 11-4 produce if ordered by regulators to serve the entire market at average cost?

A) R
B) S
C) T
D) U

Question 65

Use the figure to answer the following question(s).
Figure 11-12
If the firms in this oligopolistic industry depicted in Figure 11-12 can collude effectively and restrict the entry of potential competitors, the price of their product will tend to be

A) greater than P₂.
B) close to P₂.
C) approximately equal to P₁.
D) less than P₁.

Question 66

Use the figure to answer the following question(s).
Figure 11-7
The demand and cost conditions in an industry are as depicted in Figure 11-7. In the viewpoint of economic efficiency, what would the ideal price and output be?

A) price, $7; quantity produced, 100
B) price, $10; quantity produced, 170
C) price, $14; quantity produced, 100
D) price, $7; quantity produced, 200

Question 67

Use the figure to answer the following question(s).
Figure 11-2
What is the maximum profit per month that the monopolist will be able to earn in Figure 11-2?

A) zero
B) approximately $10,000
C) approximately $20,000
D) approximately $40,000

Question 68

Use the figure to answer the following question(s).
Figure 11-7
If the output in the industry is produced by a monopolist, at what price will the good sell and what quantity will be produced in Figure 11-7?

A) price, $7; quantity produced, 100
B) price, $10; quantity produced, 170
C) price, $14; quantity produced, 100
D) price, $7; quantity produced, 200

Question 69

Figure 11-9
From Figure 11-9, indicate the maximum profit a pure monopolist with the cost and demand conditions above would be able to achieve.

A) BFEC
B) AGEC
C) BHEC
D) EFH

Question 70

Use the figure to answer the following question(s).
Figure 11-2
The cost and demand conditions for a monopolist are depicted in Figure 11-2. If the monopolist is maximizing profit, it will charge a price of

A) $30 and produce an output of 4,000.
B) $40 and produce an output of 4,000.
C) $40 and produce an output of 2,000.
D) more than $40.

Question 71

Use the figure to answer the following question(s).
Figure 11-6
If the output in the industry is produced by a monopolist, at what price will the good sell and what quantity will be produced in Figure 11-6?

A) price, P₁; quantity produced, Q₁
B) price, P₂; quantity produced, Q₂
C) price, P₃; quantity produced, Q₁
D) price, P₃; quantity produced, Q₂

Question 72

Use the figure to answer the following question(s).
Figure 11-3
What is the maximum profit per month that the monopolist will be able to earn in Figure 11-3?

A) zero
B) approximately $20,000
C) approximately $50,000
D) approximately $100,000

Question 73

Use the figure to answer the following question(s).
Figure 11-8
The demand and cost conditions in an industry are as depicted in Figure 11-8. In the viewpoint of economic efficiency, what would the ideal price and output be?

A) price, $10; quantity produced, 100
B) price, $15; quantity produced, 50
C) price, $15; quantity produced, 75
D) price, $20; quantity produced, 50

Question 74

Use the figure to answer the following question(s).
Figure 11-8
If the output in the industry is produced by a monopolist, at what price will the good sell and what quantity will be produced in Figure 11-8?

A) price, $10; quantity produced, 100
B) price, $15; quantity produced, 50
C) price, $15; quantity produced, 75
D) price, $20; quantity produced, 50

Question 75

Use the figure to answer the following question(s).
Figure 11-10
Given the cost and revenue curves illustrated in Figure 11-10, what price will a profit-maximizing monopolist charge?

A) P₁
B) P₂
C) P₃
D) P₄

Question 76

Use the figure to answer the following question(s).
Figure 11-1
What price and output in Figure 11-1 would an unregulated profit-maximizing monopolist choose?

A) price A and output T
B) price B and output S
C) price B and output R
D) price C and output R

Question 77

Use the figure to answer the following question(s).
Figure 11-10
If the monopolist is regulated by the "marginal cost pricing" technique, what price in Figure 11-10 will be charged?

A) P₁
B) P₂
C) P₃
D) P₄

Question 78

Use the figure to answer the following question(s).
Figure 11-6
The demand and cost conditions in an industry are as depicted in Figure 11-6. In the viewpoint of economic efficiency, what would the ideal price and output be?

A) price, P₁; quantity produced, Q₁
B) price, P₂; quantity produced, Q₂
C) price, P₃; quantity produced, Q₁
D) price, P₁; quantity produced, Q₂

Question 79

Use the figure to answer the following question(s).
Figure 11-3
The cost and demand conditions for a monopolist are depicted in Figure 11-3. If the monopolist is maximizing profit, it will charge a price of

A) $10 and produce an output of 20,000.
B) $20 and produce an output of 10,000.
C) $20 and produce an output of 20,000.
D) more than $20.

Question 80

Use the figure to answer the following question(s).
Figure 11-1
If a regulatory agency were using the "normal return" (zero economic profit) criteria to impose a price on a monopolist with the cost and demand conditions depicted in Figure 11-1, what price would the regulators set, and what output would the monopolist produce?

A) price A and output T
B) price B and output S
C) price B and output R
D) price C and output R