978-0133832396 Chapter 4

Chapter 4

Velasquez Test Bank

MULTIPLE CHOICE

1. Which of the following models results in just outcomes, respects moral rights, and satisfies

utilitarianism?

a. Pure monopoly

b. Equilibrium point

c. Oligopoly

d. Perfect market competition

2. When every seller finds a willing buyer, and every buyer finds a willing seller, what has

been achieved?

a. Equilibrium

b. Utility

c. Positive demand

d. Marginal utility

3. Which of the following indicates a principle that states the more of an item a person

consumes, the less satisfying each additional item becomes?

a. Imperfect competition

b. Increasing marginal costs

c. Diminishing marginal utility

d. Equilibrium point

Skill Level: Understand the concepts

Difficulty Level: Moderate

4. Which of the following is achieved when the supply and demand curves for an item meet and

cross?

a. Marginal utility

b. Equilibrium

c. Imperfect competition

d. Surplus

5. In a perfectly competitive market, when do prices achieve capitalist justice for the seller?

a. At the equilibrium point

b. On the demand curve

c. On the supply curve

d. When utility is gained

6. When do prices in a perfectly competitive market motivate a firm to invest in resources?

a. When demand is low

b. When resources can be used efficiently

c. When consumers move to bundles of goods

d. When demand is high

7. In a perfectly competitive free market, what is the outcome when benefits and burdens are

shared and individuals are paid based on the value of contribution made to the organization?

a. Capitalist justice

b. Marginal utility

c. Equilibrium

d. Price-fixing

8. Which of the following is an aspect of a monopoly market?

a. There are reduced barriers to entry in the market.

b. The supply and demand curves do not reach equilibrium.

c. Additional resources are added to the market to counter shortages.

d. One dominant seller has a substantial market share.

9. Monopolies can charge prices well above the supply curve, and even above equilibrium

price. Why don’t other producers enter the market when prices are above equilibrium?

a. The price will fall to equilibrium, making profits unattainable.

b. The monopolizing company will cut prices to drive out new competition.

c. There are barriers to entry that make it virtually impossible to enter the market.

d. It will be more difficult to establish a strong customer base.

10. The ability of a monopoly to charge high prices and reap high profits is a violation of

a. supply and demand.

b. capitalist justice.

c. imperfect competition.

d. utility.

Difficulty Level: Moderate

11. In a monopoly market, quantities can be set at less than the equilibrium amount, and prices

are set

a. at equilibrium.

b. above equilibrium.

c. below equilibrium.

d. at rates determined by the government.

12. Which of the following is an outcome of a monopoly market?

a. Resources are used in ways that produce shortages, causing prices to be higher.

b. Demand increases because of the scarcity of ownership.

c. Prices are set below equilibrium and profit is made on volume, not cost levels.

d. A perfectly competitive free market is achieved.

13. Keeping resources out of monopoly markets where shortages show more products are

needed, and diverting resources to markets without a shortage violates which ethical principle?

a. Capital justice

b. Negative rights

c. Supply and demand

d. Utilitarianism

14. In an imperfectly competitive market, having a few dominant sellers will create

a. a monopoly.

b. anticompetitive practices.

c. perfect competition.

d. an oligopoly.

15. Which of the following bests describes oligopoly markets?

a. They are highly concentrated markets.

b. There are very few barriers to entry.

c. There is one significant seller supported by less dominant sellers.

d. They have little ability to influence the market or prices.

16. Which of the following is the outcome of two or more companies that were competitors

joining together to create one company?

a. A monopoly

b. A horizontal merger

c. Less concentration in the market

d. Perfectly competitive markets

17. When managers of oligopolies work together to limit the quantity of goods available in the

market and create a shortage, they can unfairly destroy smaller competitors by

a. price-fixing.

b. bid rigging.

c. manipulating supply.

d. exclusive dealing arrangements.

Skill Level: Analyze it

Difficulty Level: Moderate

18. Which of the following occurs when managers in an oligopoly market agree in advance

which company will submit a winning proposal for a product or service being offered to a buyer?

a. Exclusive dealing arrangements

b. Predatory pricing

c. Retail maintenance agreements

d. Bid rigging

19. Which of the following occurs when prices are set at an artificial level with a goal of

destroying a competitor?

a. Predatory price discrimination

b. Price discrimination

c. Bribery

d. Tying arrangements

20. Which of the following is considered to be the single most important piece of antitrust

legislation in the United States today?

a. The Interstate Commerce Act of 1887

b. The Sherman Antitrust Act of 1890

c. The Tobacco Trust Act of 1908

d. The Clayton Act of 1914

21. Which of the following is a key interpretation of Section 2 of the Sherman Antitrust Act?

a. All monopolies are illegal and must be broken up.

b. A monopoly cannot use its power to maintain its monopoly.

c. A current monopoly can extend its monopoly into other markets.

d. A company cannot acquire a monopoly by buying another company.

22. Which of the following prohibits price discrimination, exclusive contracts, tying

arrangements, and mergers between companies that may substantially lessen competition?

a. The Interstate Commerce Act of 1887

b. The Sherman Antitrust Act of 1890

c. The Tobacco Trust Act of 1908

d. The Clayton Act of 1914

23. Which of the following is one of the main ideas behind the do-nothing viewpoint of an

oligopoly power?

a. Economies of scale are good for business.

b. Concentration leads to interdependence among companies with little price competition.

c. There is a positive correlation between concentration and profitability.

d. Regulation should be set up to control the activities of large corporations.

24. According to J. Fred Weston, which of the following is a basic assumption of the antitrust

view of oligopoly power?

a. Concentration leads to less interdependence and price competition among companies.

b. Concentration helps to ensure product differentiation leading to less need for advertising.

c. There is a negative correlation between concentration and profitability.

d. Concentration is due mostly to mergers, and a high degree of concentration is unnecessary.

25. Which of the following views of oligopoly power holds that economies of scale will be lost if

firms are broken up or limited in size?

a. The regulation view

b. The antitrust view

c. The do-nothing view

d. The trust-buster view

SHORT ANSWER

26. Identify the seven features of perfectly competitive free markets.

27. How do price and quantity move to equilibrium in a perfectly competitive market?

Topic: Perfect Competition

Learning Objective 4.2: Outline the conditions that must be present to achieve ethical perfect

competition

28. How does a monopoly market limit economic utility?

29. Discuss how a monopoly places restrictions on the negative rights that a perfectly free market

respects?

30. Which of the seven features of a purely competitive market are not present in an oligopoly?

31. Discuss the three components of the fraud triangle.

rationalization. Rationalization is a way to justify one’s actions. The wrongdoer may claim the

action is “what everyone does” or something someone deserves.

Topic: Oligopolistic Competition

Learning Objective 4.4: Differentiate the ethical implications of oligopolistic and monopolistic

competition

32. Based on the assumptions of J. Fred Weston in his antitrust view of oligopoly power, what

are the advantages of breaking up an oligopoly?

33. Discuss the regulation view of oligopoly power.