Questions:
1) Oligopoly is a market:
A) with one firm and many different products.
B) with many firms and a homogeneous product.
C) with a few firms and the actions of one firm have a large impact on the others.
D) with a few firms and the actions of one firm have a small impact on the others.
Table 12 .1
2) Refer to Table 12.1. The four-firm concentration ratio of the cigarette industry is equal to:
A) 48%.
B) 54%.
C) 71%.
D) 81%.
3) Refer to Table 12.1. If Firms L and M were to merge, the four-firm concentration
ratio would:
A) rise to 71%.
B) fall to 82%.
C) fall to 40%.
D) rise to 82%.
4) If the five-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal share of the market, the Herfindahl-Hirschman Index is:
A) 10,000.
B) 2,000.
C) 2,500.
D) 400.
5) The kinked demand curve is relatively ________ for prices higher than the current price, and is relatively ________ for prices lower than the current price.
A) steep; steep
B) flat; steep
C) steep; flat
D) flat; flat
6) Natural monopoly is characterized by:
A) decreasing average total cost because there is only one firm.
B) decreasing average total cost because a unique product is being produced.
C) decreasing average total cost because there are economies of scale.
D) increasing average total cost because there are barriers to entry.
7) Refer to Figure 13.1. The type of firm pictured is a:
A) patent monopoly.
B) natural monopoly.
C) strategic resource monopoly.
D) government franchise monopoly.
8) Refer to Figure 13.1. If the cable company depicted was free to sell to any number
of subscribers it desires and set any price, it would sell to ________ subscribers at a
price of ________.
A) 800; $15
B) 1,000; $16
C) 2,200 $13
D) 2,500; $12
9) A central issue in the government's lawsuit against Microsoft involved the integration of Microsoft's internet browser into its operating system, thus requiring consumers to purchase both of them together rather than separately. This practice is known as:
A) predatory pricing.
B) price fixing.
C) collusion.
D) tie-in sales.
10) Which of the following laws prohibits predatory pricing?
A) the Sherman Act
B) the Robinson-Patman Act
C) the Clayton Act
D) the Federal Trade Commission Act
11) You want to purchase a new car. You have gone to 3 dealerships that sell the type of car you want. The price of the car is different at each of the dealerships. You have estimated that if you go to another dealership, the marginal amount you may save will be $250, but the marginal cost of going to the dealership would be $350. Which of the
following statements is accurate?
A) You should go to the next dealership, as you would be able to save an additional $250.
B) In order to determine whether or not you should go to the next dealership, you would need to know the total costs and total benefits of this action.
C) You should not go to the next dealership because the marginal cost of this action exceeds the marginal benefit.
D) You should continue going to dealerships as long as the marginal benefit of additional search is positive.
12) Because of asymmetric information, a seller of a lemon used car earns:
A) more profit than a seller of a plum used car.
B) less profit than a seller of a plum used car.
C) the same profit as a seller of a plum used car.
D) less revenue than a seller of a plum used car.
13) In the market for automobile insurance, asymmetric information occurs when:
A) insured drivers drive more safely than uninsured drivers.
B) insured drivers drive more recklessly than uninsured drivers.
C) drivers with greater risk purchase more automobile insurance.
D) automobile insurance is universal.
14) Refer to Figure 14.1. If the price of insurance is $5000, then
A) 50% of the consumers will be high-cost.
B) 25% of the consumers will be low-cost.
C) 75% of the consumers will be low-cost.
D) 50% of the consumers will be low-cost.
15) Refer to Figure 14.1. If the insurance company in this market becomes pessimistic and assumes that all buyers will be high-cost consumers, the equilibrium will be at:
A) point a.
B) point b.
C) point c.
D) none of these.
16) Private goods are:
A) rival in consumption and their benefits are excludable.
B) nonrival in consumption and their benefits are excludable.
C) nonrival in consumption and their benefits are nonexcludable.
D) rival in consumption and their benefits are nonexcludable.
17) Which of the following would be an example of an external benefit?
A) More people start to ride the bus and as a result air pollution is reduced.
B) Firms are able to reduce their costs of production by using a more efficient technology.
C) The government requires polluting firms to pay a special tax.
D) A firm has just gotten permission to open a landfill on property that is adjacent to your home.
18) Due to the existence of external benefits associated with public goods:
A) private markets will lead to an efficient allocation of resources.
B) government intervention can possibly improve on private market outcomes.
C) private markets will correct for the underproduction of the good.
D) the free-rider problem is eliminated.
19) The problem with using voluntary contributions to support a public good is known as the ________ problem.
A) user
B) utility
C) free-rider
D) external cost
20) The free-rider problem arises:
A) when people feel their contribution is so small relative to the total amount needed that it won't make a difference whether they contribute or not.
B) when people realize they will still receive the benefits of a good whether they pay for it or not.
C) whenever the government produces a good or service.
D) whenever there is a surplus of the product in the market.
21) If a producer is imposing an external cost on society , the best response would be to:
A) lower the producer's taxes to offset pollution.
B) increase the production.
C) internalize the externality.
D) subsidize the producer.
22) Reductions in pollution from a specific starting level of existing pollution is called:
A) abatement.
B) the EPA.
C) command and control.
D) usage tax.
23) Once a firm is forced to consider an external cost, the price of its product will:
A) increase and output will decrease.
B) increase and output will increase.
C) decrease and output will decrease.
D) decrease and output will increase.
24) The government imposes taxes on firms which generate external costs in an effort to:
A) make it easier for economists to measure external costs.
B) lead to a zero level of output.
C) force decision makers to consider the full costs of their actions.
D) lower the firms' costs of production.
25) One advantage that a command-and-control policy has over a pollution tax is that:
A) we will be able to accurately predict the amount of pollution that will occur.
B) it generates a lower level of pollution at a lower cost.
C) it encourages firms to use the most efficient abatement methods possible.
D) it will lower the prices of products produced by polluting firms.