Question 1: When a competitively produced product generates negative externalities in production, the industry will:
- over-produce the good because marginal social cost will exceed marginal social benefit in competitive equilibrium.
- over-produce the good because marginal private cost is less than marginal private benefit in competitive equilibrium.
- under-produce the good because marginal social cost will exceed marginal social benefit in competitive equilibrium.
- under-produce the good because marginal private social cost is less than marginal private benefit in competitive equilibrium in competitive equilibrium.
Question 2: The Herfindahl-Hirschman index is a measure of:
- market concentration.
- income distribution.
- technological progressiveness.
- price discrimination.
Question 3: In contestable markets:
- dominant firms do not worry about possible new competition if they raise their prices and increase profits.
- capital investments are not easily redeployable.
- market performance is consistent with competitive markets even if only a few firms dominate the industry.
- there is little freedom of entry or exit.
Question 4: As a policy option for regulating natural monopoly, average cost pricing is desirable because:
- consumers pay the lowest possible price that will generate sufficient revenue to cover the costs of the natural monopolist.
- allocative efficiency is achieved.
- price is set equal to the minimum value of long-run average cost.
- all of the above.
Question 5: _____ occur whenever a third party receives or bears costs arising from an economic transaction in which the individual (or group) is not a direct participant.
- Pecuniary benefits and costs
- Externalities
- Intangibles
- Monopoly costs and benefits
Question 6: The ____ is equal to the some of the squares of the market shares of all the firms in an industry.
- market concentration ratio
- Herfindahl-Hirschman index
- correlation coefficient
- standard deviation of concentration
Question 7: The antitrust laws regulate all of the following business decisions except:
- collusion.
- mergers.
- monopolistic practices.
- wage levels.
Question 8: Natural monopoly is said to exist when:
- the industry demand curve intersects the firm's average total cost curve at a rate of production below the rate of production consistent with minimum ATC.
- there are high barriers to entry.
- costs are the same for all companies in the industry.
- it is more cost efficient to have multiple firms.
Question 9: The Sherman Act prohibits:
- contracts in restraint of commerce.
- monopolization of an industry.
- marginal cost pricing.
- a and b.
Question 10: Regulatory agencies engage in all of the following activities except:
- controlling entry into the regulated industries.
- overseeing the quality of service provided by the firms.
- setting federal and state income tax rates on regulated firms.
- setting prices that consumers will pay.
Question 11: Patents have been defended by some on the grounds that they stimulate inventive activity. Others have argued for less patent protection because:
- resources are misallocated by the grant of a patent monopoly.
- patents may not be necessary to encourage inventive activity.
- the current patent monopoly period (about 20 years) is too short to encourage any inventive activity.
- a and b only.
Question 12: While the Coase Theorem argues that private voluntary bargaining can result in efficient activity levels when externalities are present, the theorem breaks down when:
- transactions costs are high.
- there are strategic holdouts.
- there are prohibitive notification costs.
- all of the above.
Question 13: Which of the following arguments can be made in favor of laws that mandate drivers to have liability insurance?
- The government knows what is best for society.
- By forcing everyone to have insurance, the cost of insurance falls.
- Asymmetric information is reduced when everyone has insurance.
- Externalities associated with the accidents caused by uninsured motorists impose costs on third parties.
Question 14: Barriers to entry affect market performance because
- competition may cease to become a disciplining force for existing firms.
- firms no longer have incentives to maximize profits.
- sellers can increase prices above minimum average cost without motivating new sellers to enter the industry.
- both a and c.
Question 15: Which of the following public policies restricts competition?
- Licensing
- Patents
- Import quotas
- All of the above