ECON 202 EXAM ANSWERS
Using antitrust law to split up an unregulatednatural monopolyinto several competingfirms
would reduce product price.
would increase productprice.
C. might either increase product price or reduce productprice.
D. would reduce average total cost.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
A major criticism of industrial regulation is that
it has been applied to virtually all major U.S. corporations in the post-Second World War period.
marginal cost pricing has createdan underallocation of resources.
C. by allowing a fairreturn price, it gives natural monopolists little incentive to containcosts.
D. regulatory commissions have frequently caused natural monopolies to go bankrupt.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
Critics of the regulation of natural monopolies contend that
regulation increases the incentive of firms to lower costs.
regulated firms may use creative accounting to reducecosts, prices, and profits.
when rates of return are based on the value of real capital, an uneconomic substitution of labor for capital may occur.
D. the industry may "capture" or control the regulatory commission.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
A market in which the entire demand for a good or servicecan be satisfied at the least cost by a single firm is a
A. horizontal market.
B. natural monopoly.
contestable market.
perfect market.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
The legal cartel theory of regulationargues that
A. regulation encourages firms to inflate their production costs.
B. firms in certain industries want to be regulated rather than face the rigors of competition.
social regulation has been carried beyond the point at which marginal benefits and marginal costs are equal.
the government is the logical agency to protectconsumers from naturalmonopolies.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
The public interest theory of industrialregulation contends that
while industrial regulation is sound in theory,bureaucrats allow monopolists to obtainexcessive profits.
regulated monopolies are tantamount to legal cartels.
C. the objective of regulation is to protect the public from the market power inherent in naturalmonopolies.
D. firms in some industries want to be regulated.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
Which one of the followingis concerned with industrial regulation, as distinctfrom social regulation?
Occupational Safety and Health Administration
Consumer Products Safety Commission
C. Federal Communications Commission
D. Environmental Protection Agency
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
All ofthe following are regulatory commissions dealing with industrial regulation (as distinct from social regulation) except the
A. Food and Drug Administration.
Federal Energy Regulatory Commission.
Federal Communications Commission.
50 state public utility commissions.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
Where there is naturalmonopoly, government ismost likely to implement
social regulation.
antitrust policy.
C. industrial regulation.
D. an externality containment policy.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
The main purpose of industrial regulation is to
A. lower price to marginal cost.
B. lower price to average total cost such that the firm earns a fair return.
break monopolies into competing firms.
reduce X-inefficiency.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
Critics of industrial regulation say that such regulation
A. contributes to X-inefficiency.
benefits small firms at the expense of large firms.
creates insurmountable principal-agent problems.
suffers from the free-rider problem.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
Critics of industrial regulation say that such regulation
A. benefits small firms at the expense of large firms.
B. perpetuates monopoly long after new technology has eroded natural monopoly.
creates insurmountable principal-agent problems.
has resulted mainly from the paradox of voting.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
Overall, economists believe that deregulation of industriesformerly subjected to industrial regulation
has been a clear failure.
is neutral in its impact on society's well-being, creating minimalnetbenefits at best.
C. has produced large net benefits for consumers and society.
D. has produced sizableefficiency gains in the communications industry, but not in the transportation industry (railways, trucking, airlines).
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
The largest efficiency gains from deregulation have occurred in the
natural gas and cable television industries.
cable television and railroadindustries.
communications and stock-brokering industries.
D. airlines, trucking, and railroad industries.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
Social, as distinct from industrial, regulation is the major focus of the
Federal Trade Commission.
Federal Energy Regulatory Commission.
Federal Communications Commission.
D. Consumer Product Safety Commission.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
Defenders of social regulationpoint out that
A. social regulation is a better alternative than unregulated natural monopoly.
B. critics who stress the high administrative and compliance costs of social regulation underestimate the social benefits that the regulations produce.
the number of regulatoryagencies has declined over the past two decades.
social regulations reduce product prices.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
Social regulation differs from industrial regulation in that
A. social regulation applies to virtually all industries, while industrial regulation applies to a restricted number.
industrial regulation is involved in the details of the production process, while socialregulation is not.
social regulation has expanded less rapidly in recent years than has industrial regulation.
industrial regulation regulates products, whereas social regulation regulates prices.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
Critics of social regulation argue that it
causes deflation.
violates the due process clause of the U.S. Constitution.
C. is a relatively greater burden for smallfirms than for large firms.
D. improves allocative efficiency.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
Which one of the followingis concerned with social regulation?
A. Equal Employment Opportunity Commission
Federal Communications Commission
Sherman Commission
Federal Energy Regulatory Commission
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
The optimal amount of social regulationoccurs where the marginal benefit of such regulation
A. equals the marginal cost.
exceeds the marginal cost by the greatest amount.
is zero.
is at its maximum.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
Congressional representatives have called for extensive ergonomics regulations to reduce strains and injuries from repetitive activities by workers. Such regulation, if passed, would be a good example of
industrial regulation.
the principal-agent problem.
the free-rider problem.
D. social regulation.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
(Consider This) The Consider This box "OfCatfish and Art (and Other Things in Common)" lists examplesof recent antitrustcases involving
monopolization.
tying contracts.
C. price-fixing.
D. horizontal mergers.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States. Learning Objective: 21-02 Describesome of the key issues relating to the interpretation and application of antitrustlaws.
Test Bank: I Topic: Antitrust Policy: Issues and Impacts
Topic: The Antitrust Laws
(Consider This) According to the Consider This box on catfish and art, which of the following firms were convicted forhorizontal price-fixing?
Dell and Gateway(personal computer makers)
Boeing and Airbus (aircraft manufacturers)
Heinz and Del Monte (food product firms)
D. Apple, Harper Collins, and Penguin (e-books)
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-02 Describe some of the key issues relating to the interpretation and application of antitrustlaws.
Test Bank: I Topic: Antitrust Policy: Issues and Impacts
(Consider This) According to the Consider This box on catfish and art, which of the following airlinesin 2007 agreedto pay $300 millionin fines forfixing fuel surcharges on passenger tickets and cargo?
A. Korean Air and British Airlines
Qantas and Lufthansa
United Airlines and AmericanAirlines
Virgin Atlantic and Aeroflot
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-02 Describe some of the key issues relating to the interpretation and application of antitrustlaws.
Test Bank: I Topic: Antitrust Policy: Issues and Impacts
(Last Word) In 1994, the U.S. Department of Justice stopped which of the following practices?
A. airlines explicitly agreeing to divide the market so that each carrier could have a local monopoly
B. airlines preposting fare changesas a form of tacit collusion
Microsoft using its monopoly power to coerce computer manufacturers to favor InternetExplorer over rival browsers
price-fixing by Japanese,German, and Swedish auto parts makers
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-02 Describe some of the key issues relating to the interpretation and application of antitrustlaws.
Test Bank: I Topic: Antitrust Policy: Issues and Impacts
(Last Word) In 2000,Microsoft wasfined $2.7 billionfor
A. using anticompetitive means to promote its Internet Explorer web browser.
monopolizing the market for word processing software.
conspiring with Netscape and Sun to monopolizethe market for Internetbrowsers.
deliberately pricingWindows 95 and 98 belowmarginal cost to monopolizethe market for operating systems for personal computers.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-02 Describe some of the key issues relating to the interpretation and application of antitrustlaws.
Test Bank: I Topic: Antitrust Policy: Issues and Impacts
(Last Word) In 2015, Google was indicted by EuropeanUnion antitrust officials for
A. conspiring with Microsoftto ensure that Google and Microsoft products were bundled.
B. using its 90 percentshare of the Internetsearch market to favor its own price-comparison service.
using pricing algorithms to price-fix with other Internet sellers.
using its monopoly power to require all computers sold in Europe to support Google Chrome.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-02 Describe some of the key issues relating to the interpretation and application of antitrustlaws.
Test Bank: I Topic: Antitrust Policy: Issues and Impacts
(Last Word) What problem is created forantitrust regulators by online pricing algorithms?
A. Even if the algorithms produce collusive prices,the lack of an agreementmakes it difficult to prosecuteunder current antitrust law.
The encrypted data does not allow regulators to determine whether prices are converging to a level consistent with collusion.
Online pricing algorithms are programmed to randomly vary prices to preventantitrust regulators from discovering price-fixing.
Online pricing algorithms are programmed to ensure that there is just enoughof a gap between prices acrossfirms that collusionwould be impossible to prove.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-02 Describe some of the key issues relating to the interpretation and application of antitrustlaws.
Test Bank: I Topic: Antitrust Policy: Issues and Impacts
True / False Questions
Price-fixing is illegal underSection 1 of the ShermanAct.
TRUE
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: I Topic: The Antitrust Laws
Monopolization is illegal under Section 1 of the Sherman Act.
FA LSE
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: I Topic: The Antitrust Laws
The U.S. Justice Department, the Federal Trade Commission, state attorneys general, and injuredprivate parties can independently file chargesagainst firms under the Sherman Act.
TRUE
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: I Topic: The Antitrust Laws
Anticompetitive mergers are illegal under provisions of the ClaytonAct (as amended).
TRUE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States. Learning Objective: 21-02 Describesome of the key issues relating to the interpretation and application of antitrustlaws.
Test Bank: I Topic: Antitrust Policy: Issues and Impacts
Topic: The Antitrust Laws
Proposed ergonomics regulations are an exampleof industrial regulation (rather than social regulation).
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
Tying agreements are contracts by which retailers agree to charge the prices that manufacturers set on branded goods.
FA LSE
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: I Topic: The Antitrust Laws
The Celler-Kefauver Act outlawed interlocking directorates.
FA LSE
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: I Topic: The Antitrust Laws
The regulation of natural monopolies has been criticized because it creates a tendency for regulated firms to use too much labor and too little capital in the production process.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Test Bank: I Topic: Industrial Regulation
The Celler-Kefauver Act made vertical mergers legal, provided each firm does not have more than 30 percentof its relevant market.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: I Topic: The Antitrust Laws
The legal cartel theory indicates that in any industrywhere market demand and the long-run average total cost curve intersect close to the latter's minimum, government regulation is mandatory and desirable.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Identifyand explain the economicprinciples and difficulties relating to the setting of prices rates charged by so-callednatural monopolies.
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Industrial Regulation Topic: Social Regulation
The Consumer Product Safety Commission engages in social regulation, rather than industrial regulation.
TRUE
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
The Americans with Disabilities Act of 1990 is an example of industrial regulation.
FA LSE
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Discuss the nature of social regulation, its benefits and costs, and its optimal level.
Test Bank: I Topic: Social Regulation
Multiple Choice Questions
Laws and government actions designed to prevent monopoly and to promote competition are the focus of
social regulation.
industrial regulation.
C. antitrust policy.
D. incomes policy.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
Government regulation of firms’ prices or "rates" in selectedindustries is the focus of
A. social regulation.
B. industrial regulation.
antitrust policy.
incomes policy.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
Antitrust laws are essentially
A. anti-monopoly.
anti-banking.
anti-finance.
anti-competition.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
The basic purpose of antitrustlaws is to
A. provide subsidies for Americanbusiness.
B. limit monopoly power in industry.
control prices to protect consumers.
enforcelaws that restrictcompetition.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
Dominant firms that formed in several industriesinthe U.S. in the 1870sand 1880s, which assigned control to a single decision group, were referred to as
A. trusts.
mergers.
tying contracts.
single-seller monopoly.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
Which of the followingresults will not occur in a monopolistic market?
The monopolist will maximize profits by setting a price that'shigher than marginal cost.
The price will be higher than what would prevail in a competitive market.
In monopoly pricing, income is, in effect, transferred from consumers to the monopolist.
D. The output level will be higher than in a competitive market.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
The cornerstone of antitrustlegislation in the U.S. is the
A. Clayton Act.
B. Sherman Act.
Celler-Kefauver Act.
Federal Trade Commission Act.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
The Sherman Act of 1890 outlawed
monopoly pricing and foreigntrade.
price discrimination and monopoly profits.
C. restraint of trade and monopolization.
D. foreign trade and monopolization.
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
Which antitrust act provided that injured partiescould file suit and, if successful, collect triple damages from monopolistic violators?
Wheeler-Lea Act
Clayton Act
C. Sherman Act
D. Celler-Kefauver Act
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Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
The legislation that prohibited "every contract. . . or conspiracy, in restraintof trade and commerce" is the
Federal Trade Commission Act.
Clayton Act.
Celler-Kefauver Act.
D. Sherman Act.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
Those who may file antitrust lawsuitsagainst violators of the Sherman Act include the following, except
injured private parties.
state attorneys general.
C. the U.S. Department of Labor.
D. the U.S. Department of Justice.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
Which act specifically outlawedprice discrimination when such discrimination is not justified on the basis of cost differences and when it reduces competition?
A. Sherman Act
B. Clayton Act
Wheeler-Lea Act
Federal Trade Commission Act
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
Tying contracts, which is prohibited undertheClayton Act, refers to the situation where a producer requires that a buyer
can reselltheproduct but only at a higher price than the original purchase price.
cannot buy a similar product from other producersifthat buyer wants to continuebuying its product.
C. buy another of its products as a condition for buying the desired product.
D. cannot ever resell the product bought.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: II Topic: The Antitrust Laws
If a buyer who wants product A is required by the seller to buy its productsB and C as well, this is called
an exclusive contract.
profit maximization.
competitive pricing.
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