Question 1

Which of the following public policies has (have)the effect of restricting competition?&#10;A)licensing&#10;B)patents&#10;C)import quotas&#10;D)a and b only&#10;E)a,b,and c

Accepted Answer

All of the given policies act as barriers to entry for firms looking to enter the market and restrict competition. Licensing restricts the number of firms that can legally operate in a certain industry, while patents grant exclusive rights to produce and sell a certain product or service. Import quotas limit the amount of foreign goods that can be sold in a domestic market, protecting local producers from foreign competition.

Question 2

The concept of market conduct includes such things as ____.&#10;A)pricing behavior of the firm or group of firms&#10;B)product policy of the firm or group of firms&#10;C)the degree of seller and buyer concentration in the market&#10;D)a and b only&#10;E)a,b,and c

Accepted Answer

Market conduct refers to the behavior of firms in the market, particularly how they set prices and their product policies. It does not directly include the degree of seller and buyer concentration, which is more related to market structure.

Question 3

____ yields the same results as the theory of perfect competition,but requires substantially fewer assumptions than the perfectly competitive model.&#10;A)Baumol's sales maximization hypothesis&#10;B)The Pareto optimality condition&#10;C)The Cournot model&#10;D)The theory of contestable markets&#10;E)none of the above

Accepted Answer

The theory of contestable markets yields the same results as the theory of perfect competition, but with fewer assumptions. The other options (A, B, and C) are alternative theories that do not necessarily have the same results as perfect competition.

Question 4

The sentiment for increased deregulation in the late 1970's and early 1980's has been felt most significantly in the price regulation of&#10;A)coal&#10;B)grain&#10;C)transportation&#10;D)automobiles&#10;E)electric power generation

Accepted Answer

The sentiment for increased deregulation in the late 1970's and early 1980's resulted in the deregulation of transportation. This led to the Airline Deregulation Act of 1978 and the Motor Carrier Act of 1980, which removed government restrictions on air and trucking industries, resulting in increased competition and lower prices for consumers.

Question 5

Patents have been defended by some on the grounds that they stimulate inventive activity.Others have argued for changes in current patent laws because:&#10;A)resources are misallocated by the grant of a patent monopoly&#10;B)patents may not be necessary to encourage inventive activity&#10;C)the current patent monopoly period (17 years)is too short to encourage any inventive activity.&#10;D)a and b only&#10;E)all of the above

Accepted Answer

Both options A and B are valid criticisms of current patent laws. Granting a patent monopoly can lead to misallocation of resources, as competitors may be prevented from using certain technologies, even if they could use them more efficiently or effectively. Additionally, some argue that patents may not be necessary to encourage inventive activity, as many individuals and companies may still innovate even without the potential for exclusive rights granted by a patent. Option C is not a valid criticism, as 17 years is actually considered a relatively long period of exclusivity in most industries, and is generally seen as sufficient time to recoup research and development costs.

Question 6

The lower the barriers to entry and exit,the more nearly a market structure fits the ____ market model.&#10;A)monopolistic competition&#10;B)perfectly contestable&#10;C)oligopoly&#10;D)monopoly&#10;E)none of the above

Accepted Answer

The perfectly contestable market model assumes that there are no barriers to entry or exit in the market, meaning that firms can easily enter and exit the market as they wish. This creates a market with fierce competition and pricing at marginal cost, even if there are only a few firms in the market. Thus, the lower the barriers to entry and exit, the more closely the market structure fits the perfectly contestable model.

Question 7

The concept of market structure refers to three main characteristics of buyers and sellers in a particular market.These include ____.&#10;A)the degree of seller and buyer concentration in the market&#10;B)the degree of actual or imagined differentiation between the products or services of competing producers&#10;C)the pricing behavior of the firms&#10;D)a and b&#10;E)a,b,and c

Accepted Answer

The answer of The concept of market structure refers to...

Question 8

The Coase Theorem works best in places that transaction costs for contracts among people is low.Often in the world of torts and externalities both parties can claim that they have rights to impose on others.One case is that of a railroad that is noisy and scares the cattle and the rancher whose cattle sometimes wander in front of moving trains causing damage to them and the train.What does the Coase say would happen?

A)The train should have property right to be safe from wandering cattle,and the rancher should be liable for train damage of rampaging cattle.
B)The rancher should have the property right to be safe from noisy trains,and the railroad should be liable for weight loss of cattle from train whistles and rumbling noise.
C)If transaction costs are low,the efficient activity will occur,either the rancher or railroad installing fences to protect from rampaging cattle and/or sound insulation with trees,or if it is cheaper,fewer train trips per day.The cheapest or most efficient solution will happen,regardless of who is assigned the original property right.

Accepted Answer

According to the Coase Theorem, if transaction costs are low, the efficient activity will occur regardless of who is assigned the original property right. In this case, both the rancher and the railroad have claims to property rights. However, if the transaction costs are low, the most efficient solution will occur, which could be either the rancher or the railroad installing fences or sound insulation, or reducing the number of train trips per day. The key is that the parties will negotiate to find the most efficient outcome, without necessarily needing to rely on assigning property rights. Therefore, option C is the correct answer.

Question 9

The Herfindahl-Hirschman index (also shortened to just the Herfindahl index)is a measure of ____.&#10;A)market concentration&#10;B)income distribution&#10;C)technological progressiveness&#10;D)price discrimination&#10;E)none of the above

Accepted Answer

The Herfindahl-Hirschman index (HHI) is a commonly used measure of market concentration. It is calculated by summing the squared market shares of all firms in a market. A higher HHI represents a more concentrated market, while a lower HHI represents a more competitive market. Therefore, market concentration is the best choice for this answer.

Question 10

The ____ is equal to the some of the squares of the market shares of all the firms in an industry.&#10;A)market concentration ratio&#10;B)Herfindahl-Hirschman index&#10;C)correlation coefficient&#10;D)standard deviation of concentration&#10;E)none of the above

Accepted Answer

The Herfindahl-Hirschman index (HHI) is a commonly used measure of market concentration. It is calculated by summing the squares of the market shares of all firms in the industry. The higher the HHI, the more concentrated the market.

Question 11

Industry A has market shares of 50,30,and 20.Industry B has market shares of 45,40,and 15.Hint: HHI = $\Sigma$(s_i²),where s_i is the market shares of the i-th firm in the industry. A)The Herfindahl index for A is 100. B)The Herfindahl index for A is 3,800. C)The Herfindahl index for B is 3,600 D)The Herfindahl index for A is greater than for B. E)The Herfindahl index is for B is 4,000.

Accepted Answer

The answer of Industry A has market shares of 50,30,and...

Question 12

The antitrust laws regulate all of the following business decisions except ____.&#10;A)collusion&#10;B)mergers&#10;C)monopolistic practices&#10;D)price discrimination&#10;E)wage levels

Accepted Answer

The answer of The antitrust laws regulate all of the...

Question 13

The Sherman Act prohibits:&#10;A)contracts in restraint of commerce&#10;B)monopolization of an industry&#10;C)price discrimination&#10;D)a and b&#10;E)a,b,and c

Accepted Answer

The answer of The Sherman Act prohibits:&#10;A)contracts in restraint of...

Question 14

____ occurs whenever a third party receives or bears costs arising from an economic transaction in which the individual (or group)is not a direct participant.&#10;A)Pecuniary benefits and costs&#10;B)Externalities&#10;C)Intangibles&#10;D)Monopoly costs and benefits&#10;E)none of the above

Accepted Answer

The answer of ____ occurs whenever a third party receives...

Deck 16: Government Regulation