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Exam 3

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Question 1 (4 points)
The public is often wary of deregulation because
  1. they inherently trust the ability of government to regulate markets.
  2. it is a hard word to spell.
  3. taxpayers like to pay the salaries of regulators.
  4. they like the price stability of regulated markets and worry about price volatility under deregulation.
  5. deregulation always brings higher prices.
Question 2 (4 points)
The free-rider problem occurs when
  1. benefits accrue to individuals not directly involved in the transaction.
  2. costs are imposed on others not directly involved in the transaction.
  3. exclusion is costly or impossible, so that a consumer or producer can use the good without having to pay for it.
  4. consumption is rival, so that the consumption of a product by one individual diminishes that available for others.
  5. it is easy to exclude others from consuming the good.
Question 3 (4 points)
Government policies aimed at controlling monopolistic behavior are known as
  1. financial regulation.
  2. antitrust policy.
  3. disclosure laws.
  4. environmental regulation.
  5. antimonopolization policy.
Question 4 (4 points)
Which of the following would not cause a change in the supply of a resource?
  1. A decrease in the number of suppliers
  2. An increase in the number of buyers
  3. A change in the price of other uses of the resource
  4. An increase in the number of suppliers
  5. A change in tastes
Question 5 (4 points)
Privatization occurs when
  1. a publicly owned enterprise is transferred to private ownership.
  2. the Bush Administration disregards privacy rights after September 11.
  3. electric utilities become nationalized.
  4. private resources become publicly owned.
  5. more bathrooms are built.
Question 6 (4 points)
When regulators require that a natural monopoly sets price equal to average total cost,
  1. the firm earns a normal profit.
  2. this is known as allowing a fair rate of return.
  3. the firm produces an inefficiently small level of output.
  4. the firm operates where the demand curve intersects the average-total-cost curve.
  5. All of these.
Question 7 (4 points)
When social regulation increases a firm's fixed and variable costs,
  1. consumers pay lower prices and the quantity that the firm produces is increased.
  2. consumers pay higher prices and the quantity that the firm produces is increased.
  3. consumers pay higher prices and the quantity that the firm produces is decreased.
  4. consumers pay lower prices and the quantity that the firm produces is decreased.
  5. the firm is forced to shut down.
Question 8 (4 points)
Price vs Quantity
According to the figure above, as the price of a resource declines
  1. firms are more willing and able to supply less of that resource and households are more willing and able to purchase more of that resource.
  2. firms are more willing and able to purchase more of that resource and households are more willing and able to supply less of that resource.
  3. households are more willing to supply less of that resource.
  4. a direct relationship between resource prices and quantities demanded exist.
  5. firms are more willing to use more of that resource.
Question 9 (4 points)
The problem of common ownership arises due to
  1. the fact that costs accrue solely to the individual, but the benefits go to the society as a whole.
  2. the fact that benefits are shared in common.
  3. a lack of clearly defined property rights.
  4. the fact that most people are cranky.
  5. the internalization of external costs.
Question 10 (4 points)
The per se rule
  1. was used by U.S. courts from 1914 until the 1980s.
  2. prohibited firm tactics that were potentially monopolizing.
  3. had the effect of making antitrust policy stricter.
  4. allows the mere existence of anticompetitive activities to be sufficient evidence for a guilty verdict.
  5. All of these.
Question 11 (4 points)
Product differentiation
  1. is often accomplished through advertising or trivial product changes.
  2. means the firm has an elastic demand curve.
  3. separates monopolistically competitive firms from perfectly competitive firms.
  4. allows the firm to raise its price without losing all of its customers.
  5. All of these.
Question 12 (4 points)
If the market price of the product that labor produces increases,
  1. the marginal product of labor increases.
  2. the demand for labor curve shifts to the left.
  3. fewer workers will be hired.
  4. the wage rate decreases.
  5. the demand for labor curve shifts to the right.
Question 13 (4 points)
The Coase theorem states that when transactions costs are low, then
  1. bargaining will lead to a socially optimal allocation only if liability is placed on the victim of pollution.
  2. bargaining will lead to a socially efficient allocation regardless of where liability is placed.
  3. bargaining will lead to a socially optimal allocation only if liability is placed on the polluter.
  4. bargaining will never lead to a socially efficient allocation.
  5. None of these.
Question 14 (4 points)
Martket for Steel
The market for steel
The figure above represents an example of
  1. a negative externality.
  2. the misuse of graphical analysis.
  3. the efficiency of private markets.
  4. a public good.
  5. a positive externality.
Question 15 (4 points)
According to the text, the number of substitutes for a resource affects the price elasticity of demand for a resource. In what way is the price elasticity of demand for the resource affected?
  1. The price elasticity of demand is lower the more substitutes there are.
  2. The more substitutes, the lower will be the price.
  3. The greater the number of substitutes the more inelastic is demand.
  4. The smaller the number of substitutes the more price-elastic is demand.
  5. The price elasticity of demand is higher the greater the number of substitutes.
Question 16 (4 points)
In the case of public goods,
  1. one person's consumption of the good does not diminish the good's consumption by others.
  2. it is costly or impossible to exclude individuals from consuming the good once it is provided.
  3. the principle of mutual exclusivity does not apply.
  4. the quantity produced by a private market would be too small from society's viewpoint since private firms could not force payment for the goods.
  5. All of these.
Question 17 (4 points)
A market failure occurs when
  1. the market outcome is viewed as unfair by a majority of consumers.
  2. markets produce the socially efficient level of output.
  3. a market fails to provide the good at a zero price.
  4. the market outcome is not the socially efficient outcome.
  5. quantity demanded exceeds quantity supplied.
Question 18 (4 points)
Which of the following is involved with international regulation?
  1. The Multilateral Agreement on Investment
  2. The General Agreement on Tariffs and Trade
  3. The World Trade Organization
  4. All of these.
  5. None of these.
Question 19 (4 points)
Derived demand is
  1. the demand for services but not goods.
  2. the derivative of the demand curve.
  3. the same as effective demand.
  4. the demand for the resource that stems from the demand for the final product.
  5. the demand for goods but not services.
Question 20 (4 points)
A perfectly competitive employer of labor will maximize profits from the employment of labor by equating
  1. the marginal revenue product of labor with the wage rate.
  2. the marginal product of the last worker employed with the price of the product produced.
  3. the marginal product of the last worker employed with the wage rate.
  4. the value of the marginal product with the price of the product produced.
  5. the wage rate with the price of the product produced.
Question 21 (4 points)
A cartel will be more stable as
  1. the product becomes more differentiated.
  2. the ability of the cartel to enforce agreements increases.
  3. barriers to entry in the market decline.
  4. the number of firms increases.
  5. All of these.
Question 22 (4 points)
According to the text, a firm attempting to maximize profit will acquire additional resource
  1. until MR = MC.
  2. until MC = 0.
  3. until MR = 0.
  4. until MC > 0.
  5. until MR > 0.
Question 23 (4 points)
When the costs of an individual's actions are not borne directly and solely by that individual,
  1. the market cannot determine the efficient amount to produce and consume.
  2. regulation may help to bring the market to a more efficient solution.
  3. negative externalities exist.
  4. a private market will provide an inefficiently large amount of the good.
  5. All of these.
Question 24 (4 points)
If a monopolistically competitive firm is in long-run equilibrium, then
  1. economic profits = 0.
  2. P = ATC.
  3. MR = MC.
  4. All of these.
  5. None of these.
Question 25 (4 points)
Price vs Quantity
The figure above represents
  1. a monopolistically competitive market.
  2. a monopoly.
  3. game theory.
  4. the kinked-demand-curve model in oligopoly.
  5. long run equilibrium in perfect competition.
Question 26 (4 points)
Antitrust policy is the responsibility of
  1. the Federal Trade Commission.
  2. the Antitrust Division of the Justice Department.
  3. the Environmental Protection Agency.
  4. the Federal Bureau of Investigation.
  5. Both a. and b.
Question 27 (4 points)
Anytime firms in monopolistic competition are earning above-normal profit,
  1. new firms have no incentive to enter the market.
  2. new firms enter the market, and entry continues until firms are earning normal profit.
  3. they can maintain those levels indefinitely.
  4. new firms have incentive to enter the market, but are legally barred from doing so.
  5. their cost structure automatically shifts up, eliminating the additional profit.
Question 28 (4 points)
Monopolistic Competition
Assume that the firm in the figure above is monopolistically competitive. In the long run, we would expect
  1. no change in the number of firms because the market is already in long run equilibrium.
  2. entry of firms because economic profits are negative.
  3. exit of firms because economic profits are positive.
  4. exit of firms because economic profits are positive.
  5. entry of firms because economic profits are positive.
Question 29 (4 points)
What characteristic is unique to oligopolistic firms?
  1. Homogeneous products
  2. Economic profits can exist in the long run.
  3. Economic profits can exist in the short run.
  4. Interdependence of firms
  5. Barriers to entry in the market
Question 30 (4 points)
What is the difference between the VMP and MRP?
  1. VMP is always less than MRP
  2. They are the same for a firm selling in a perfectly competitive market structure.
  3. MRP is the same as MFC for a perfectly competitive firm but not for the monopsonist.
  4. VMP is the same as MFC for a perfectly competitive firm but not for the monopsonist.
  5. They are the same for a firm purchasing in a perfectly competitive market structure.
Question 31 (4 points)
If the government uses taxes as a solution to negative externality problems, then
  1. firms will pay the taxes as long as the tax per unit of output is less than the per unit cost of ameliorative technologies.
  2. the government can easily acquire the necessary information to find the optimal tax.
  3. firms will always pay the taxes.
  4. firms will never pay the taxes.
  5. firms will pay the taxes as long as the taxes are greater than the cost of pollution control equipment per unit of output.
Question 32 (4 points)
Which of the following statements about collusion is not true?
  1. Its overriding goal is to reduce competition and thereby increase profits.
  2. Collusion never results in benefits for the participants.
  3. Collusion is illegal in the United States.
  4. The greater the number of firms, the more difficult it is to maintain.
  5. There is a tendency for cheating.
Question 33 (4 points)
If a person drives less carefully after obtaining car insurance,
  1. it is due to adverse selection.
  2. the deductible must be high.
  3. a moral hazard exists.
  4. there are no information costs.
  5. that person is feeling buyer's remorse.
Question 34 (4 points)
A market where adverse selection may occur is
  1. in the used car market.
  2. in the market for health insurance.
  3. in the market for bank loans.
  4. All of these.
  5. None of these.
Question 35 (4 points)
Monopolistic Competition
Consider the monopolistically competitive firm described in the figure above. The profit-maximizing output level and price are, respectively,
  1. L and D.
  2. F and A.
  3. F and E.
  4. N and P.
  5. J and B.
Question 36 (4 points)
Since the SEC does not have the resources to examine every document that it requires from public companies,
  1. the findings of the SEC can never be trusted.
  2. conservative politicians always argue for increases in the SEC budget.
  3. it must rely on the work of auditors, investment bankers, and others.
  4. public companies never have the incentive to hide information from the SEC.
  5. polls show that the public favors the elimination of the SEC.
Question 37 (4 points)
Which of the following markets is likely to have the lowest Herfindahl index?
  1. Automobiles
  2. Carbonated soft drinks
  3. Electricity generation
  4. Breakfast cereals
  5. Wheat
Question 38 (4 points)
The percentage change in the quantity supplied of a resource divided by the percentage change in the price of that resource is the
  1. price elasticity of resource supply.
  2. average resource cost.
  3. marginal resource cost.
  4. derived resource demand.
  5. marginal revenue product.
Question 39 (4 points)
Payoffs
According to the payoffs in the table above,
  1. Firm A will advertise no matter what if Firm B does not advertise.
  2. Firm B has a dominant strategy but Firm a does not.
  3. Firm A will advertise only if Firm B advertises.
  4. both firms have a dominant strategy of not advertising.
  5. Firm A has a dominant strategy but Firm B does not.
Question 40 (4 points)
Resource Allocation
In the table above, assuming that a firm is allocating its resources efficiently, what is the MRP of capital?
  1. 2
  2. 5
  3. 10
  4. 225
  5. 25
Copyright 2008, by the Contributing Authors. Cite/attribute Resource . admin. (2009, January 27). Exam 3. Retrieved January 07, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/introduction-to-microeconomics-1/exam3.htm. This work is licensed under a Creative Commons License Creative Commons License