Deck 14: Government and the Markets

Question 1

Which of the following statements is true?

A) Direct regulation is the only form of government intervention into the operation of markets in the United States.
B) There is widespread agreement that the most appropriate type of government intervention into a market is direct regulation.
C) One reason for government intervention into a market is a concern that the amount of competition in the market is inappropriate.
D) The main reason government intervention into a market is sought is to ensure that monopolies are owned by the government rather than by private individuals.

Answer 1

One reason for government intervention into a market is a concern that the amount of competition in the market is inappropriate.

Question 2

Which of the following is NOT identified in the text as an argument for seeking government intervention in a market?

A) The desire to reduce the risks competition introduces into business decision making.
B) The concern that the amount of competition in a particular market is too limited to be effective.
C) The desire to equalize the distribution of income by moving the economy away from market decision-making.
D) The benefit to the public interest from having one large efficient regulated seller, rather than several smaller less efficient sellers, in a market.

Answer 2

The desire to equalize the distribution of income by moving the economy away from market decision-making.

Question 3

Antitrust laws are designed to:

A) increase government participation in business decision-making.
B) promote competition through the production of goods and services by government enterprises.
C) promote the operation of market forces by prohibiting certain practices that limit competition.
D) all of the above.

Answer 3

promote the operation of market forces by prohibiting certain practices that limit competition.

Question 4

The primary purpose of the U.S. antitrust laws is to:

A) regulate natural monopolies.
B) ensure that businesses earn only reasonable rates of profit.
C) promote the operation of market forces and limit practices that injure competition.
D) protect consumers from false and misleading advertising and product claims by businesses.

Question 5

Monopolization refers to:

A) the joint setting of prices by monopoly firms in a market.
B) attempts to acquire a monopoly share of the market.
C) the division of sales territories among competing monopoly firms in a market.
D) charging different prices for the same product to different buyers by a monopoly seller in a market.

Question 6

The U.S. antitrust laws are aimed primarily at:

A) monopolization.
B) attempts to monopolize.
C) combinations and conspiracies in restraint of trade.
D) all of the above.

Question 7

Which of the following strategies could allow a seller to become a monopoly?

A) predatory pricing.
B) aggressive advertising.
C) acquisition of competitors.
D) all of the above.

Question 8

If, through unreasonable means, a firm becomes, or attempts to become, the sole seller in its market, it is most likely guilty of illegal:

A) interlocking practices and acts.
B) monopolization or attempts to monopolize.
C) combination or conspiracy in restraint of trade.
D) sales practices against buyers who are unaware of their legal rights.

Question 9

Practices carried out by two or more firms, such as price fixing, which restrict competition in a market:

A) were first outlawed in the Clayton Act of 1914.
B) are classified as combinations or conspiracies in restraint of trade.
C) are illegal in most states but are allowed by the federal government.
D) are of little concern since most markets where this could occur are regulated.

Question 10

Combinations and conspiracies in restraint of trade are:

A) best illustrated by mergers.
B) best illustrated by trade associations.
C) any practices designed to reduce competition.
D) practices carried out by two or more firms designed to reduce competition.

Question 11

Strategies designed to restrain trade could include:

A) price fixing.
B) territorial division.
C) predatory pricing.
D) all of the above.

Question 12

An antitrust suit can be brought against a firm by:

A) another firm.
B) a state government.
C) the U.S. government.
D) all of the above.

Question 13

Antitrust enforcement is carried out by:

A) state governments.
B) the federal government.
C) both the federal and state governments.
D) the federal, state, and local governments.

Question 14

Antitrust enforcement:

A) depends heavily on the courts and is carried out on a case-by-case basis.
B) completely removes business decision making from the hands of private individuals.
C) requires that federal regulatory agencies have ongoing approval of all business policies before they are enacted.
D) all of the above.

Question 15

Which of the following is NOT a primary concern of the U.S. antitrust laws?

A) Preventing firms from conspiring and fixing prices among themselves.
B) Ensuring that consumers pay the lowest prices possible for the products they purchase.
C) Ensuring that trade association activities do not aid firms in rigging markets among themselves.
D) Preventing a firm from monopolizing or attempting to monopolize its market through anticompetitive means.

Question 16

Which of the following statements about the U.S. antitrust laws is FALSE?

A) Antitrust enforcement is carried out by both the federal and state governments.
B) Administration of the laws depends heavily on the courts and is carried out on a case-by-case basis.
C) In some instances a pretrial agreement can be reached where the accused firm promises to discontinue a practice or settles in some other way.
D) When a problem arises, the government responds by becoming a participant in the market and oversees the behavior of sellers on an ongoing basis.

Question 17

The original and most broadly worded federal antitrust statute is the:

A) Clayton Act.
B) Sherman Act.
C) Celler-Kefauver Act.
D) Robinson-Patman Act.

Question 18

Which of the following is condemned by the Sherman Act?

A) Vertical integration in a market.
B) Having a monopoly in a market.
C) Horizontal integration in a market.
D) Attempting to monopolize a market.

Question 19

Per se violations of the antitrust laws:

A) apply mainly to trade association activities.
B) refer exclusively to Section Two of the Sherman Act.
C) generally involve acts outlawed by Section 7 of the Clayton Act.
D) involve situations where proof that an activity has occurred is itself sufficient to establish that a firm has violated the law.

Question 20

When accusing a firm of a per se violation of the antitrust laws, the government must prove:

A) that the violation occurred.
B) the violation restrained trade.
C) the firm intended to break the law.
D) all of the above.

Question 21

Per se antitrust violations are:

A) legal business practices that become illegal only if they actually restrain competition.
B) illegal business agreements where proof of the agreement is sufficient to establish guilt.
C) legal business practices that become illegal only if they were intended to restrain competition.
D) illegal business agreements where proof of damage to other sellers is sufficient to establish guilt.

Question 22

Price fixing occurs when competitors in a market agree on:

A) specific prices to be charged for their products.
B) the price below which they will not sell their products.
C) who will submit the lowest offer when pricing is done with sealed bids.
D) any of the above.

Question 23

Which of the following would be a per se violation of the Sherman Act?

A) Price fixing.
B) Joint ventures.
C) Trade association activities.
D) Unfair methods of competition.

Question 24

Which of the following would be a per se violation of the Sherman Act?

A) Price discrimination.
B) Trade association activities.
C) Unfair methods of competition.
D) Territorial division by competitors.

Question 25

Price fixing between competing sellers is:

A) a per se violation of the antitrust laws.
B) a Rule of Reason violation of the antitrust laws.
C) allowed when sellers in a market are facing strong competition from foreign firms.
D) allowed when an industry is experiencing widespread unemployment and slack demand for its product.

Question 26

Price fixing is:

A) charging different prices to different buyers.
B) the joint determination of prices by competitors in a market.
C) setting the price of a good or service above its average total cost.
D) the division of geographic sales areas among sellers in a market who agree not to compete.

Question 27

Territorial division occurs when:

A) a firm monopolizes a market.
B) vertical integration takes place.
C) horizontal integration takes place.
D) firms agree to sell in separate areas in a geographic market.

Question 28

Firms A and B are competitors and agree to charge $100.00 for their products. Firms C and D are also competitors in a different market and agree that neither will charge less than $80.00 for its product. The pricing decisions of Firms A and B:

A) and C and D are perfectly legal.
B) and C and D are per se violations of the antitrust laws.
C) and C and D are subject to a Rule of Reason interpretation when determining if they are anticompetitive.
D) are per se violations of the antitrust laws, but the pricing decisions of Firms C and D are subject to the Rule of Reason.

Question 29

Two firms enter into an agreement whereby one will market its product only west of the Mississippi River if the other will market its product only east of the Mississippi River. Such an agreement is:

A) a violation of the Robinson-Patman Act.
B) an agreement to divide sales territories.
C) a Rule of Reason violation of the antitrust laws.
D) all of the above.

Question 30

Rule of reason antitrust violations are:

A) illegal business activities where proof of damage is sufficient to establish guilt.
B) illegal business activities where proof of the activity is sufficient to establish guilt.
C) business practices that become illegal only if they unreasonably restrain competition.
D) business practices that become illegal only if there is an unreasonable intent to restrain competition.

Question 31

The "Rule of Reason"says that:

A) no reason need be given by the government for regulating a business.
B) businesses should be allowed a reasonable profit in order to attract investors.
C) a particular practice should be examined to see if it is an unreasonable restraint of trade.
D) any competitive practice by a business is reasonable because the purpose of competition is to drive inefficient sellers from the market.

Question 32

Violations of the antitrust laws involving practices that are not necessarily anticompetitive, such as certain activities of trade associations, are:

A) semi-violations.
B) per se violations.
C) judicial violations.
D) Rule of Reason violations.

Question 33

A trade association could facilitate price fixing if it:

A) reports names of buyers.
B) reports specific terms of sales.
C) does not make information available to all members.
D) all of the above.

Question 34

A cooperative effort by two or more firms that is limited in scope, such as drilling for oil, is a:

A) joint venture.
B) trade association.
C) per se violation of the antitrust laws.
D) none of the above.

Question 35

A joint venture:

A) results when there is vertical integration.
B) results when there is horizontal integration.
C) is a cooperative agreement between two or more firms that is limited in scope.
D) is a cooperative agreement between two or more firms to divide sales in a geographic market.

Question 36

If a firm attempts to monopolize its market, the firm is likely guilty of a:

A) Clayton Act violation.
B) Celler-Kefauver Act violation.
C) Sherman Act Section 1 violation.
D) Sherman Act Section 2 violation.

Question 37

Monopolization and attempt to monopolize cases rest largely on:

A) the share of the market held by the accused firm.
B) specific anticompetitive actions carried out by the accused firm.
C) both of the above.
D) none of the above.

Question 38

Which of the following statements about monopolization cases brought against individual firms under Section Two of the Sherman Act is FALSE?

A) Per se violations do not apply in these situations.
B) An important element in these cases is the definition of the relevant market.
C) The fact that a firm has a monopoly-regardless of the reason-is condemned by the Act.
D) The "30-60-90 Rule" described in the Alcoa case is a rough guide for determining whether a firm has monopolized a market.

Question 39

In the antitrust case, United States v. Aluminum Company of America, the court established the rough guideline that a firm could be considered to have monopolized its market if its share of the market exceeds:

A) 50 percent.
B) 90 percent.
C) the combined shares of all other competitors.
D) the combined shares of the two next largest competitors.

Question 40

Which of the following statements is true?

A) Controlling a small share of the market exempts a firm from the antitrust laws.
B) Controlling a very large share of the market is a per se violation of the antitrust laws.
C) Trade associations are always in violation of the antitrust laws because their sole purpose is to monopolize markets.
D) None of the above.

Question 41

If you were a lawyer representing a firm accused of monopolizing its market:

A) how broadly or narrowly the market is defined would be of no importance to your case.
B) it would generally be to your advantage to have the market defined as broadly as possible.
C) it would generally be to your advantage to have the market defined as narrowly as possible.
D) there would be no question as to what constitutes the boundaries of the market since this information is widely known and agreed to.

Question 42

If a large producer were accused of monopolizing its market, without knowing more you would expect that this producer would attempt to persuade the court that the relevant market definition is:

A) local.
B) regional.
C) national.
D) international.

Question 43

According to Application 14.1, "Cases Involving the Sherman Act,"F. Hoffman-LaRoche Ltd et al. vs Empagran S.A. et al. and Leegin Creative Leather Products, Inc., vs PSKS, Inc., were cases involving:

A) price fixing only.
B) territorial division only.
C) price fixing and monopolizing behavior, respectively.
D) monopolizing behavior and territorial division, respectively.

Question 44

The act, passed in 1914, that outlaws "unfair methods of competition in commerce"is the:

A) Sherman Act.
B) Celler-Kefauver Act.
C) Robinson-Patman Act.
D) Federal Trade Commission Act.

Question 45

The first step in a Federal Trade Commission action is:

A) a complaint filing.
B) an administrative hearing.
C) taking the business to court.
D) the issuance of a cease-and-desist order.

Question 46

If the Federal Trade Commission finds that a business is engaged in unfair competition, it:

A) is acting beyond its jurisdiction.
B) must take the business to court.
C) can issue a cease-and-desist order.
D) must turn the matter over to the Department of Justice.

Question 47

The federal antitrust law that prohibits specific activities, such as exclusionary practices, that substantially lessen competition or tend to create a monopoly is the:

A) Clayton Act.
B) Sherman Act.
C) Interstate Commerce Act.
D) National Industrial Recovery Act.

Question 48

When a firm sells its product in a way that forecloses its rivals from the market, that firm is carrying out:

A) a territorial division.
B) a horizontal merger.
C) a price-fixing agreement.
D) an exclusionary practice.

Question 49

If LBC Corp. sells companies its computer hardware only if they buy the needed software from LBC as well, and if this policy prevents LBC's software rivals from selling in this market, then LBC:

A) may be violating the Clayton Act.
B) is following an exclusionary practice.
C) is imposing a tying contract on its hardware purchasers.
D) all of the above.

Question 50

Actions by a seller that prevent its suppliers or buyers from dealing with a competitor are:

A) territorial divisions.
B) price discrimination.
C) exclusionary practices.
D) interlocking directorates.

Question 51

When a buyer must purchase Good X in order to obtain Good Y, this is called:

A) a tying contract.
B) price discrimination.
C) a sole supplier contract.
D) an interlocking directorate.

Question 52

Which of the following is a tying contract?

A) A quantity discount.
B) Buy one product at full price, buy the second at half price.
C) The purchase of one good is contingent on the purchase of a different good.
D) All of the above.

Question 53

A firm will sell product A to a buyer only if the buyer purchases product B from the firm as well. This arrangement is known as:

A) a tying contract.
B) a conditional contract.
C) an enforcement contract.
D) an across-the-board contract.

Question 54

Interlocking directorates:

A) are per se illegal.
B) could be in violation of the Clayton Act.
C) occur when the sale of one good is tied to the sale of another.
D) occur when regulated utilities must have members of state public service commissions on their boards of directors.

Question 55

An interlocking directorate occurs where:

A) the top management of a corporation is also its board of directors.
B) the same person sits on the boards of directors of different corporations.
C) the government establishes an agency to direct the operations of several different companies.
D) several divisions of a corporation are brought under the control of one officer of the corporation.

Question 56

The same person sitting on the boards of directors of different companies is an example of:

A) tying contracts.
B) vertical integration.
C) horizontal integration.
D) interlocking directorates.

Question 57

The antitrust act directed primarily at price discrimination is the:

A) Sherman Act.
B) Celler-Kefauver Act.
C) Robinson-Patman Act.
D) Federal Trade Commission Act.

Question 58

If two buyers purchase the same product from the same seller with the same treatment and service, but pay different prices, then the seller is practicing:

A) price fixing.
B) price leadership.
C) price discrimination.
D) none of the above.

Question 59

The act that amends the Clayton Act in regard to anti-competitive price discrimination is the:

A) Sherman Act.
B) Celler-Kefauver Act.
C) Robinson-Patman Act.
D) Federal Trade Commission Act.

Question 60

Which of the following is a possible violation of the Robinson-Patman Act?

A) A seller's rival is injured because the seller charges a price below cost to the rival's buyers to draw them away from that rival.
B) Some retail firms receive promotional material free of charge from a wholesaler but other equally qualified rivals must pay for that material.
C) A firm goes bankrupt because a wholesaler sold an important input to its rivals at a lower price than it sold the input to the business that is now bankrupt.
D) All of the above.

Question 61

When different buyers acquire the same product from a seller with the same treatment and service, but pay different prices, this is called:

A) price fixing.
B) a tying contract.
C) price discrimination.
D) an exclusionary practice.

Question 62

Which of the following is illegal under the Robinson-Patman Act?

A) Treating buyers unequally in the provision of sales facilities.
B) Quantity discounts for which only a few large buyers qualify.
C) Paying purchasers for services that the purchasers have not rendered.
D) All of the above.

Question 63

Price discrimination can injure competition between sellers when:

A) it results in lower prices being charged by all the sellers.
B) it results in a seller's buyers paying as much for what they purchase as the seller's competitors' buyers pay.
C) a seller cuts prices below cost where there is intense competition for buyers, and subsidizes its losses by charging higher prices in other markets where there is less competition.
D) all of the above.

Question 64

Price discrimination by a wholesaler can injure competition between its retail buyers when:

A) it results in lower prices in all retail markets.
B) lower prices are charged to retailers in one market than are charged to retailers in a completely different unrelated market.
C) it forces some of the retailers to pay more than their competitors for what they purchase from the wholesaler.
D) all of the above.

Question 65

The act that amends the Clayton Act in regard to anti-competitive mergers and acquisitions is the:

A) Sherman Act.
B) Celler-Kefauver Act.
C) Robinson-Patman Act.
D) Federal Trade Commission Act.

Question 66

When one seller acquires a competing seller in the same market, it is a:

A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) interlocking directorate.

Question 67

One firm can acquire another firm by:

A) directly purchasing its assets.
B) purchasing a controlling number of shares of its stock.
C) both of the above.
D) none of the above.

Question 68

Two competing sports equipment stores in a city joining together to form one organization would be a:

A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) reciprocal trade agreement.

Question 69

A vertical merger would occur where:

A) a producer of men's slacks merges with a chain of men's clothing stores.
B) a small local mail order business merges with a large national mail order business.
C) a seller of ice cream merges with a producer of children's and adults' athletic equipment.
D) none of the above.

Question 70

A firm's acquisition of a supplier or distributor is a:

A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) interlocking directorate.

Question 71

The acquisition by a firm of its supplier or distributor is a:

A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) market-based merger.

Question 72

The acquisition of a meat packing company by a fast-food restaurant chain is an example of a:

A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) market-securing merger.

Question 73

A firm's acquisition of another firm that is not a competitor, supplier, or distributor, is a:

A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) interlocking directorate.

Question 74

The acquisition by an electrical equipment manufacturer of a company that wholesales cloth teddy bears is an example of:

A) a vertical merger.
B) a horizontal merger.
C) a conglomerate merger.
D) an equity-balancing merger.

Question 75

A local newspaper acquires the other local paper and a newspaper printing company.

A) Both acquisitions are horizontal.
B) The acquisition of the paper is horizontal, and the acquisition of the printing company is vertical.
C) The acquisition of the paper is conglomerate, since most people would not buy two local papers, as is the acquisition of the printing company.
D) None of the above.

Question 76

Conglomerate mergers can have anticompetitive effects because of what is known as the "deep pocket."A deep pocket refers to:

A) the ability of one of the merging firms to assure itself of buyers provided by the other firm.
B) the fact that the newly merged firm will control a larger share of its market since two previously competing sellers have joined together.
C) the financial resources that one of the merging firms can make available to the other firm to strengthen the other firm's market position.
D) all of the above.

Question 77

A merger between Coca Cola and Pepsi would be a:

A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) interlocking directorate.

Question 78

A merger between Coca Cola and McDonald's would be:

A) a vertical merger.
B) a horizontal merger.
C) a conglomerate merger.
D) an interlocking directorate.

Question 79

A merger between Coca Cola and Microsoft would be:

A) a vertical merger.
B) a horizontal merger.
C) a conglomerate merger.
D) an interlocking directorate.

Question 80

Which of the following statements is true?

A) A merger between a birdseed producer and a manufacturer of storm windows is a vertical merger.
B) A relatively small number of mergers and acquisitions has occurred each year from the mid-1980s through the early 2000s.
C) The "deep pocket" effect occurs with a conglomerate merger when the acquired firm receives large financial resources from the acquiring firm to use against the acquired firm's rivals.
D) All of the above.