Question 1

The potential for asymmetric information to bring about a general decline in product quality in an industry is known as the ________ problem.

Accepted Answer

A)  moral hazard
B)  liability
C)  capture
D)  lemonsE) A) and D)
F) A) and C)

Question 2

When regulating a natural monopoly, average cost pricing is usually used rather than marginal cost pricing because

Accepted Answer

A)  average cost pricing allows the firm to earn a normal rate of return on investment, while marginal cost pricing leads to economic losses.
B)  average cost pricing is more economically efficient than marginal cost pricing.
C)  average cost pricing leads to lower profits than marginal cost pricing.
D)  average cost pricing leads to a lower market price than marginal cost pricing.E) A) and B)
F) A) and C)

Question 3

Which of the following federal agencies is NOT engaged in social regulation?

Accepted Answer

A)  Environmental Protection Agency
B)  Federal Trade Commission
C)  Food and Drug Administration
D)  Federal Deposit Insurance CorporationE) A) and B)
F) B) and D)

Question 4

It is illegal to price discriminate except in cases in which the price differences are due to actual cost differences. This situation is due to which antitrust act?

Accepted Answer

A)  Clayton Act
B)  Contestable Market Act
C)  Federal Trade Commission Act
D)  Sherman Antitrust ActE) All of the above
F) A) and D)

Question 5

Regulators employ average cost pricing instead of marginal cost pricing because

Accepted Answer

A)  average cost pricing is more efficient than marginal cost pricing.
B)  price must be high enough to cover all opportunity costs if the firm is to stay in business.
C)  the price is lower with average cost pricing.
D)  average cost pricing is simpler to compute than marginal cost pricing.E) B) and D)
F) All of the above

Question 6

Asymmetric information is

Accepted Answer

A)  when a market failure occurs.
B)  an externality.
C)  when the producer has information on the product that the consumer lacks.
D)  the regulatory price for a natural monopoly.E) None of the above
F) B) and D)

Question 7

The Interstate Commerce Commission (ICC) regulates railroads, barges and trucks. Suppose technical change lowers the costs of railroads. As a result, the ICC permits railroads to lower prices some but also alters the rates of barges and trucks so they get additional business. The ICC would be acting consistently with

Accepted Answer

A)  the capture theory of regulation.
B)  the public interest theory of regulation.
C)  the share-the-gains, share-the-pains theory of regulation.
D)  None of the theories presented in the text since economic regulation is specific to a single industry and not to agencies that cover more than one industry. That is the province of social regulation.E) B) and D)
F) None of the above

Question 8

During the production process Ajax Corporation releases pollution into the air. Ajax Corporation operates in a monopolistic competitive industry. Which of the following statements addresses the pollution situation?

Accepted Answer

A)  Ajax is taking advantage of asymmetric information.
B)  This is an example of a market failure and is a reason for the government to regulate the industry.
C)  The quality of the product could be improved if the amount of pollution can be reduced.
D)  This is known as the lemons problem.E) A) and D)
F) All of the above

Question 9

One of the agencies responsible for enforcement of antitrust policy is

Accepted Answer

A)  the Trust Division of Congress.
B)  the Federal Trade Commission.
C)  the World Trade Organization.
D)  the Food and Drug Administration.E) B) and C)
F) All of the above

Question 10

-Refer to the above figure. From the standpoint of society, the optimal price is

Accepted Answer

A)  P1
B)  P2
C)  P3
D)  P5E) A) and B)
F) A) and C)

Question 11

Which of the following is NOT a government response to asymmetric information?

Accepted Answer

A)  Liability laws
B)  Social regulation
C)  Manufacturer's warranties
D)  Government licensingE) A) and B)
F) All of the above

Question 12

Regulation that is based upon the cost of providing the good or service is known as

Accepted Answer

A)  rate-of-return regulation.
B)  cost-of-service regulation.
C)  social regulation.
D)  deregulation.E) None of the above
F) All of the above

Question 13

Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good. Which of the following statements is true?

Accepted Answer

A)  Under both the capture theory and the share-the-gains, share-the-pain theory profits will decrease.
B)  An increase in price will occur quicker in the share-the gains, share-the-pain theory than the capture theory.
C)  An increase in price will occur quicker in the capture theory than the share-the-gains, share-the-pain theory.
D)  In the capture theory there will be an increase in price but not in the share-the-gains, share-the-pain theory.E) All of the above
F) C) and D)

Question 14

Explain the capture hypothesis.

Accepted Answer

The capture hypothesis is a theory of re...

Question 15

An agency that regulates product markets is the

Accepted Answer

A)  Equal Employment Opportunity Commission.
B)  Environmental Protection Agency.
C)  Federal Trade Commission.
D)  Occupational Safety and Health Administration.E) A) and D)
F) A) and C)

Question 16

Government policy that attempts to prevent collusion among the sellers of a product and attempts to prevent restraint of trade is known as

Accepted Answer

A)  social policy.
B)  antitrust policy.
C)  inherent policy.
D)  goodwill policy.E) A) and B)
F) A) and C)

Question 17

When promoting average cost pricing, regulators

Accepted Answer

A)  include what they consider to be a normal rate of return on investment.
B)  encourage firms to produce at the output level where price equals marginal cost.
C)  fail to consider a return to investors, so regulated firms often have a hard time raising investment funds.
D)  inflate costs so much that price ends up as large as would prevail under unregulated monopoly.E) B) and D)
F) B) and C)

Question 18

An agency that regulates labor markets is the

Accepted Answer

A)  Equal Employment Opportunity Commission.
B)  Environmental Protection Agency.
C)  Federal Trade Commission.
D)  Consumer Product Safety Commission.E) None of the above
F) A) and C)

Question 19

A major shortcoming of the Sherman Act was that

Accepted Answer

A)  when it was passed, there were no violations, so the Supreme Court ruled it unnecessary.
B)  it failed to explicitly state which specific activities were illegal.
C)  violators of the Act were forced out of business.
D)  it was not enforced by the courts.E) A) and B)
F) A) and C)

Question 20

Under rate-of-return regulation, average cost pricing

Accepted Answer

A)  is inflated so the firm can make economic profits.
B)  includes variable costs but not a cost for capital.
C)  includes what they consider to be a fair rate of return on investment.
D)  includes a cost for capital that generates an above normal rate of return.E) None of the above
F) All of the above

Exam 27: Regulation and Antitrust Policy in a Globalized Economy

The potential for asymmetric information to bring about a general decline in product quality in an industry is known as the ________ problem.

Correct Answer
verified

Regulation that is based upon the cost of providing the good or service is known as

Correct Answer
verified

Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good. Which of the following statements is true?

Correct Answer
verified

Which of the following federal agencies is NOT engaged in social regulation?

Correct Answer
verified

A major shortcoming of the Sherman Act was that

Correct Answer
verified

Regulators employ average cost pricing instead of marginal cost pricing because

Correct Answer
verified

An agency that regulates product markets is the

Correct Answer
verified

Government policy that attempts to prevent collusion among the sellers of a product and attempts to prevent restraint of trade is known as

Correct Answer
verified

Asymmetric information is

Correct Answer
verified

Correct Answer
verified

Explain the capture hypothesis.

Correct Answer
verified
The capture hypothesis is a theory of re...
View Answer

When promoting average cost pricing, regulators

Correct Answer
verified

One of the agencies responsible for enforcement of antitrust policy is

Correct Answer
verified

Under rate-of-return regulation, average cost pricing

Correct Answer
verified

When regulating a natural monopoly, average cost pricing is usually used rather than marginal cost pricing because

Correct Answer
verified

During the production process Ajax Corporation releases pollution into the air. Ajax Corporation operates in a monopolistic competitive industry. Which of the following statements addresses the pollution situation?

Correct Answer
verified

An agency that regulates labor markets is the

Correct Answer
verified

It is illegal to price discriminate except in cases in which the price differences are due to actual cost differences. This situation is due to which antitrust act?

Correct Answer
verified

Which of the following is NOT a government response to asymmetric information?

Correct Answer
verified

-Refer to the above figure. From the standpoint of society, the optimal price is

Correct Answer
verified

Exam 27: Regulation and Antitrust Policy in a Globalized Economy

The potential for asymmetric information to bring about a general decline in product quality in an industry is known as the ________ problem.

Correct AnswerverifiedShow Answer

Regulation that is based upon the cost of providing the good or service is known as

Correct AnswerverifiedShow Answer

Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following federal agencies is NOT engaged in social regulation?

Correct AnswerverifiedShow Answer

A major shortcoming of the Sherman Act was that

Correct AnswerverifiedShow Answer

Regulators employ average cost pricing instead of marginal cost pricing because

Correct AnswerverifiedShow Answer

An agency that regulates product markets is the

Correct AnswerverifiedShow Answer

Government policy that attempts to prevent collusion among the sellers of a product and attempts to prevent restraint of trade is known as

Correct AnswerverifiedShow Answer

Asymmetric information is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain the capture hypothesis.

Correct AnswerverifiedThe capture hypothesis is a theory of re...View AnswerShow Answer

When promoting average cost pricing, regulators

Correct AnswerverifiedShow Answer

One of the agencies responsible for enforcement of antitrust policy is

Correct AnswerverifiedShow Answer

Under rate-of-return regulation, average cost pricing

Correct AnswerverifiedShow Answer

When regulating a natural monopoly, average cost pricing is usually used rather than marginal cost pricing because

Correct AnswerverifiedShow Answer

During the production process Ajax Corporation releases pollution into the air. Ajax Corporation operates in a monopolistic competitive industry. Which of the following statements addresses the pollution situation?

Correct AnswerverifiedShow Answer

An agency that regulates labor markets is the

Correct AnswerverifiedShow Answer

It is illegal to price discriminate except in cases in which the price differences are due to actual cost differences. This situation is due to which antitrust act?

Correct AnswerverifiedShow Answer

Which of the following is NOT a government response to asymmetric information?

Correct AnswerverifiedShow Answer

-Refer to the above figure. From the standpoint of society, the optimal price is

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
The capture hypothesis is a theory of re...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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