Question 1

Which of the following assertions, if proven true in a court of law, would help Archer-Daniels-Midland, a maker of corn syrup, in its attempt to acquire another corn syrup producer, the Clinton Corn Processing Company?
A) Archer-Daniels-Midland is a dominant producer of corn syrup.
B) There are no good substitutes for corn syrup for any of its major uses.
C) Archer-Daniels-Midland and the Clinton Corn Processing Company together hold only a small share of the market for sweeteners including corn syrup and sugar.
D) Archer-Daniels-Midland produces many other different agricultural products, in addition to corn syrup.

Accepted Answer

Assertion C would help Archer-Daniels-Midland in its attempt to acquire another corn syrup producer by demonstrating that the merger would not create or enhance market dominance in the sweetener market, thus potentially alleviating antitrust concerns.

Question 2

Which of the following could not possibly be included in the same market as Coke?
A) Pepsi
B) Gatorade
C) Milk
D) Bread

Accepted Answer

Coke is a carbonated soft drink, which places it in the beverage market. Pepsi is its direct competitor, also a carbonated soft drink. Gatorade, although a sports drink, is still within the broader beverage market. Milk, as a drink, is also part of the beverage market. Bread, however, is a food item, not a beverage, making it the only option that wouldn't be included in the same market as Coke.

Question 3

Boeing Corporation and Airbus Industries are the only two producers of long-range commercial aircraft. This market is not perfectly competitive because:
A) each company has annual sales over $10 billion.
B) each company can significantly affect prices.
C) Airbus receives subsidies from the European Union.
D) Airbus cannot sell aircraft to the United States government.
E) all of the above

Accepted Answer

Each company can significantly affect prices due to their duopoly in the long-range commercial aircraft market, which deviates from perfect competition where no single firm can influence market prices.

Question 4

In a perfectly competitive market:
A) there are a few buyers.
B) there is a single seller.
C) there is a cartel.
D) no single buyer or seller can significantly affect the market price.

Accepted Answer

In a perfectly competitive market, no single buyer or seller can significantly affect the market price. This is because there are many buyers and sellers participating in the market, all of whom are price takers and must accept the prevailing market price. There is no single entity with enough market power to influence the price.

Question 5

Use the following statements to answer this question: I. If the extent of a market is broader, it is less likely that firms in the market can influence the market price.
II) In determining whether two different products belong to the same market, it is necessary to know whether the two products can be used as substitutes for each other.
A) I and II are both false.
B) I is false, and II is true.
C) I is true, and II is false.
D) I and II are both true.

Accepted Answer

Statement I is true because a broader market means there are more competitors and therefore less market power for individual firms. Statement II is also true because in order for two products to be considered part of the same market, they must be able to be used as substitutes for each other.

Question 6

Use the following statements to answer this question: I. Political candidates need to know the geographical extent of the market for TV commercials in determining how to reach the target number of eligible voters with the smallest possible expenditure.
II) The geographical extent of the market for gasoline in Texas will determine whether an oil company drills for oil there.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.

Accepted Answer

Statement I is true because political candidates need to understand the geographical reach of TV commercials to efficiently target voters. Statement II is false because the decision to drill for oil is based on the presence of oil reserves and economic factors, not the geographical market for gasoline.

Question 7

Which of the following is a normative question about an initiative to impose a new tax?
A) What is the expected impact on producers and consumers?
B) How much revenue is the tax expected to raise?
C) Is the tax considered to be in the public interest?
D) All of the above are normative considerations.

Accepted Answer

A normative question refers to a question that deals with values and opinions, rather than facts. Option C, "Is the tax considered to be in the public interest?" is a normative consideration because it deals with whether or not the tax is morally or ethically right, rather than simply asking how much revenue it will raise or what its economic impact will be. Options A and B are descriptive questions because they seek to describe the potential consequences of the tax, rather than evaluating its worth or value.

Question 8

Although there are many reasons why a market can be non-competitive, the principal economic difference between a competitive and a non-competitive market is:
A) the number of firms in the market.
B) the extent to which any firm can influence the price of the product.
C) the size of the firms in the market.
D) the annual sales made by the largest firms in the market.
E) the presence of government intervention.

Accepted Answer

In a competitive market, no single firm has enough market power to influence the price of the product. In a non-competitive market, one or more firms have enough market power to influence price, often resulting in higher prices and reduced output. The other options, such as the number or size of firms in the market or government intervention, may be contributing factors to the lack of competition but they are not the principal economic difference between competitive and non-competitive markets.

Question 9

Which of the following markets are competitive enough to be treated as perfectly competitive?
A) Agricultural markets
B) Copper
C) The U.S. airline industry
D) Coal, iron, tin and lumber
E) all of the above

Accepted Answer

All the options listed, including agricultural markets, copper, the U.S. airline industry, and markets for coal, iron, tin, and lumber, can be considered competitive to various extents. However, the concept of perfect competition is an idealized model, and in reality, no market perfectly fits this model. These markets are chosen as examples because they exhibit characteristics close to the model, such as many buyers and sellers, and a homogeneous product.

Question 10

An investor can acquire shares of stock in Acme Corporation either by purchasing shares on the stock market or by purchasing a bond that is convertible into shares of Acme stock. After careful study, the investor discovers that she can profit by purchasing the bond, converting it to shares of stock, and selling the stock. This practice is called:
A) selling short.
B) arbitrage.
C) profiteering.
D) dumping.
E) none of the above

Accepted Answer

This practice is called arbitrage, which involves buying an asset in one market and selling it for a higher price in another market to make a profit. In this case, the investor is buying a bond that is undervalued relative to the stock, then converting it into stock and selling it for a profit.

Question 11

Washington, D.C.'s metro train system is being extended further into the neighboring states of Maryland and Virginia, thereby reducing the cost of commuting into the United States' capitol. Other things being held constant, this can be expected to:
A) decrease the extent of the market for housing around Washington, D.C.
B) increase the extent of the market for housing around Washington, D.C.
C) have no effect on the extent of the market for housing around Washington, D.C. as the actual geography remains unchanged.
D) have no effect on the extent of the market for housing around Washington, D.C. as the range of houses available has not changed.
E) have no effect on the extent of the market for housing around Washington, D.C. as property taxes have not changed.

Accepted Answer

The extension of the metro train system into neighboring states will make commuting into Washington, D.C. easier and cheaper. As a result, more people may choose to live outside the city and commute in using the train system. This will increase the demand for housing in the surrounding areas and expand the extent of the housing market in those areas.

Question 12

Which of the following statements about markets and industries is TRUE?
A) A market includes buyers but not sellers.
B) A market includes sellers but not buyers.
C) An industry includes buyers but not sellers.
D) An industry includes sellers but not buyers.

Accepted Answer

An industry includes sellers but not buyers. An industry refers to the production of goods or services by firms selling similar or related products. It includes companies that are producing and selling goods or services, which means sellers are included. Buyers are not considered a part of the industry. A market, on the other hand, refers to the space where buyers and sellers come together to conduct transactions. Thus, option D is the correct statement.

Question 13

Use the following two statements to answer this question: I. A market is a collection of buyers and sellers that, through actual or potential interactions, determine the price for a product or set of products.
II) An industry is a collection of markets for similar or closely related products.
A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.

Accepted Answer

Statement I is true because a market is indeed a collection of buyers and sellers that interact to determine the price of products. Statement II is false because an industry is not a collection of markets; rather, it is a group of firms producing similar or related products.

Question 14

In the definition of a market, economists consider:
A) only actual interactions between buyers and sellers, not potential interactions.
B) both actual and potential interactions between buyers and sellers.
C) neither actual nor potential interactions between buyers and sellers.
D) actions by third parties that do not include buyers or sellers in the market.

Accepted Answer

Economists consider both actual and potential interactions between buyers and sellers in the definition of a market. This includes the presence of potential buyers and sellers who are not currently active in the market but could potentially participate in the future.

Question 15

Suppose you are in charge of product pricing and marketing strategy for a pharmaceutical company. You will have greater ability to independently set prices for your product if:
A) there are no close substitutes for your product.
B) there are lots of other firms selling closely related products in your market.
C) your market is perfectly competitive.
D) none of the above

Accepted Answer

If there are no close substitutes for your product, then customers will have limited options to turn to if they need the specific benefits your product provides. This means that the demand for your product will be less elastic, allowing for greater pricing power.

Question 16

Use the following statements to answer this question: I. The price for a given product may differ across sellers if the market is not perfectly competitive.
II) A single "market price" does not exist in imperfectly competitive markets.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

Accepted Answer

The answer of Use the following statements to answer this...

Question 17

Although the U. S. airline industry has only a relatively small number of sellers, the market is nevertheless highly competitive. The reason is that:
A) the number of buyers is very large.
B) due to fierce competition, no firm has significant control over prices.
C) due to fierce competition, no firm has significant control over the quantity supplied.
D) most airline routes are served by relatively many sellers.

Accepted Answer

The statement mentions that the market is highly competitive due to fierce competition, which means that no firm has significant control over prices. Therefore, option B is the correct answer as it directly addresses the reason for the highly competitive nature of the industry. Options A, C, and D are not directly related to the explanation provided.

Question 18

Which of the following features are relevant for determining the extent of a market?
A) Its geographical boundaries
B) Technological innovations that would reduce the cost of production
C) The range of products to be included in it
D) both A and B
E) both A and C

Accepted Answer

The extent of a market is determined by its geographical boundaries and the range of products to be included in it. Technological innovations that reduce the cost of production may impact the size of the market indirectly, but they are not a direct determinant of the extent of the market.

Question 19

Why is market definition important for economic decision making?
A) A firm is interested in knowing its actual and potential competitors.
B) A firm will define its market in order to maximize revenue.
C) Government regulators are interested in knowing the effect of mergers and acquisitions on competition and prices in a particular market.
D) both A and C
E) both A and B

Accepted Answer

Market definition is important for economic decision making because it helps firms understand their competition and potential market share, and it is also important for government regulators to determine the effect of mergers and acquisitions on competition and pricing in a particular market. Both choices A and C correctly highlight the importance of market definition for economic decision making. Choice B is not entirely accurate as defining the market is just one step in the process of maximizing revenue.

Question 20

Which of the following markets has the most restrictive geographic boundary?
A) The market for retail gasoline
B) The market for housing
C) The market for gold
D) The market for beef

Accepted Answer

The market for housing has the most restrictive geographic boundary because it is tied directly to physical locations, such as neighborhoods, cities, and states. Retail gasoline, gold, and beef can be transported and sold in different geographic areas.

Quiz 1: Preliminaries

Which of the following assertions, if proven true in a court of law, would help Archer-Daniels-Midland, a maker of corn syrup, in its attempt to acquire another corn syrup producer, the Clinton Corn Processing Company?

Which of the following could not possibly be included in the same market as Coke?

Boeing Corporation and Airbus Industries are the only two producers of long-range commercial aircraft. This market is not perfectly competitive because:

In a perfectly competitive market:

Which of the following is a normative question about an initiative to impose a new tax?

Although there are many reasons why a market can be non-competitive, the principal economic difference between a competitive and a non-competitive market is:

Which of the following markets are competitive enough to be treated as perfectly competitive?

Washington, D.C.'s metro train system is being extended further into the neighboring states of Maryland and Virginia, thereby reducing the cost of commuting into the United States' capitol. Other things being held constant, this can be expected to:

Which of the following statements about markets and industries is TRUE?

Use the following two statements to answer this question: I. A market is a collection of buyers and sellers that, through actual or potential interactions, determine the price for a product or set of products. II) An industry is a collection of markets for similar or closely related products.

In the definition of a market, economists consider:

Suppose you are in charge of product pricing and marketing strategy for a pharmaceutical company. You will have greater ability to independently set prices for your product if:

Use the following statements to answer this question: I. The price for a given product may differ across sellers if the market is not perfectly competitive. II) A single "market price" does not exist in imperfectly competitive markets.

Although the U. S. airline industry has only a relatively small number of sellers, the market is nevertheless highly competitive. The reason is that:

Which of the following features are relevant for determining the extent of a market?

Why is market definition important for economic decision making?

Which of the following markets has the most restrictive geographic boundary?