Test Bank Chapter 16
Chapter 16—Government Regulation
MULTIPLE CHOICE
1. Patents have been defended by some on the grounds that they stimulate inventive activity. Others have
argued for changes in current patent laws because:
a.
resources are misallocated by the grant of a patent monopoly
b.
patents may not be necessary to encourage inventive activity
c.
the current patent monopoly period (17 years) is too short to encourage any inventive
activity.
d.
a and b only
e.
all of the above
2. The Sherman Act prohibits:
a.
contracts in restraint of commerce
b.
monopolization of an industry
c.
price discrimination
d.
a and b
e.
a, b, and c
3. The sentiment for increased deregulation in the late 1970’s and early 1980’s has been felt most
significantly in the price regulation of
a.
coal
b.
grain
c.
transportation
d.
automobiles
e.
electric power generation
4. Which of the following public policies has (have) the effect of restricting competition?
a.
licensing
b.
patents
c.
import quotas
d.
a and b only
e.
a, b, and c
5. The concept of market structure refers to three main characteristics of buyers and sellers in a particular
market. These include ____.
a.
the degree of seller and buyer concentration in the market
b.
the degree of actual or imagined differentiation between the products or services of
competing producers
c.
the pricing behavior of the firms
d.
a and b
e.
a, b, and c
6. The concept of market conduct includes such things as ____.
a.
pricing behavior of the firm or group of firms
b.
product policy of the firm or group of firms
c.
the degree of seller and buyer concentration in the market
d.
a and b only
e.
a, b, and c
7. ____ yields the same results as the theory of perfect competition, but requires substantially fewer
assumptions than the perfectly competitive model.
a.
Baumol’s sales maximization hypothesis
b.
The Pareto optimality condition
c.
The Cournot model
d.
The theory of contestable markets
e.
none of the above
8. The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model.
a.
monopolistic competition
b.
perfectly contestable
c.
oligopoly
d.
monopoly
e.
none of the above
9. The Herfindahl-Hirschman index (also shortened to just the Herfindahl index) is a measure of ____.
a.
market concentration
b.
income distribution
c.
technological progressiveness
d.
price discrimination
e.
none of the above
10. The ____ is equal to the some of the squares of the market shares of all the firms in an industry.
a.
market concentration ratio
b.
Herfindahl-Hirschman index
c.
correlation coefficient
d.
standard deviation of concentration
e.
none of the above
11. Industry A has market shares of 50, 30, and 20. Industry B has market shares of 45, 40, and 15. Hint:
HHI = (si2), where si is the market shares of the i-th firm in the industry.
a.
The Herfindahl index for A is 100.
b.
The Herfindahl index for A is 3,800.
c.
The Herfindahl index for B is 3,600
d.
The Herfindahl index for A is greater than for B.
e.
The Herfindahl index is for B is 4,000.
12. The antitrust laws regulate all of the following business decisions except ____.
a.
collusion
b.
mergers
c.
monopolistic practices
d.
price discrimination
e.
wage levels
13. ____ occurs whenever a third party receives or bears costs arising from an economic transaction in
which the individual (or group) is not a direct participant.
a.
Pecuniary benefits and costs
b.
Externalities
c.
Intangibles
d.
Monopoly costs and benefits
e.
none of the above
14. The Coase Theorem works best in places that transaction costs for contracts among people is low.
Often in the world of torts and externalities both parties can claim that they have rights to impose on
others. One case is that of a railroad that is noisy and scares the cattle and the rancher whose cattle
sometimes wander in front of moving trains causing damage to them and the train. What does the
Coase say would happen?
a.
The train should have property right to be safe from wandering cattle, and the rancher
should be liable for train damage of rampaging cattle.
b.
The rancher should have the property right to be safe from noisy trains, and the railroad
should be liable for weight loss of cattle from train whistles and rumbling noise.
c.
If transaction costs are low, the efficient activity will occur, either the rancher or railroad
installing fences to protect from rampaging cattle and/or sound insulation with trees, or if
it is cheaper, fewer train trips per day. The cheapest or most efficient solution will
happen, regardless of who is assigned the original property right.