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Chapter 15: Economic Regulation and Antitrust Policy
a.
consumers "capture" regulatory agencies so that regulations favor consumers.
b.
producers "capture" regulatory agencies so that regulations favor producers.
c.
regulators limit the market power of producers.
d.
a regulation favoring producers also leads to an increase in consumer surplus.
e.
consumers and producers work together to "capture" regulatory agencies in order to achieve more desirable
regulations.
76. According to the special interest theory, the licensing of beauticians would be:
a.
desired by consumers in order to promote the public interest.
b.
desired by beauticians in order to promote the public interest.
c.
discouraged by all beauty salons, large or small.
d.
desired by some beauticians in order to restrict entry into their profession.
e.
discouraged by the government in order to protect the jobs of unlicensed beauticians.
77. Governments often enact regulations that benefit producers because:
a.
they seek to regulate in the best interest of the public.
b.
consumers have less information than producers and therefore seek government protection.
c.
consumers have a strong interest in matters that affect their standard of living.
d.
producers lobby as they have a strong interest in matters that affect their specialized source of income.
e.
producers seek to act in the best interest of the public.
78. A physicians' professional association supports legislation seeking higher quality medical care. According to the
special interest theory of regulation, which of the following groups will benefit the most from this legislation?
a.
The government, through decreased regulation of physician quality
b.
Patients, through reduced prices for medical care
c.
Physicians, through increased prices for medical care
d.
Hospitals, through reduced prices for physicians' services
e.
The government, since higher quality health care is clearly in the public interest
79. If ball bearings producers support a proposed regulation of their industry, then it is likely that:
a.
the prices of ball bearings will decrease under the regulation.
b.
the profits of firms in the ball-bearing industry will decrease after the regulation.
c.
ball bearings producers will promote the interests of the public.
d.
ball bearings producers will promote the interests of the public.
e.
consumers of ball bearings will suffer from the proposed regulation
80. According to the special interest theory, _____.
a.
economic regulation is designed to promote social welfare
b.
producers may be able to influence regulators to impose restrictions favorable to producers
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Chapter 15: Economic Regulation and Antitrust Policy
c.
groups of consumers with special interests are always able to control a regulatory agency to their own benefit
d.
foreign lobbyists may be able to control a regulatory agency to their own benefit
e.
the conflict of interest among Special Interest Groups over economic regulation may cancel out the effects of
such regulation
81. Economic regulation leads to a(n):
a.
increase in the market power of existing firms.
b.
fall in the prices of goods and services.
c.
increase in the entry of new firms into the industry.
d.
increase in social welfare.
e.
increase in the demand for goods and services produced by existing firms.
82. Which of the following is a likely result of the deregulation of the airline industry that might benefit consumers?
a.
A wage increase for union pilots
b.
A possible decline in airline safety
c.
One firm emerging as an unregulated monopoly
d.
Loss of service on unprofitable routes
e.
A decrease in air fares
83. Antitrust laws attempt to promote competition by:
a.
allowing a single firm to control the supply of raw materials.
b.
reducing the costs incurred by firms in a market.
c.
enabling firms to charge high prices.
d.
prohibiting monopolistic behavior.
e.
prohibiting firms from acting as price takers.
84. The purpose of antitrust laws is to _____.
a.
reduce anticompetitive activities
b.
increase anticompetitive activities
c.
guarantee worker safety
d.
promote quality products
e.
prevent large-scale production
85. In the late nineteenth century, technological improvements and cheaper transportation in the United States led to:
a.
a decrease in the minimum efficient scale in many industries.
b.
an increase in the minimum efficient scale in many industries.
c.
an overall reduction in productive efficiency.
d.
narrowing of markets.
e.
price increases in many industries.
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Chapter 15: Economic Regulation and Antitrust Policy
86. U.S. manufacturers formed trusts in the late 1880s because:
a.
booms in the economy made trusts highly profitable and allowed them to expand.
b.
economies of scale allowed larger firms to prosper.
c.
the rapid growth of the railroads allowed firms to reach a wider market.
d.
technological breakthroughs increased capital use and optimal firm size.
e.
they wanted to avoid price wars during depressions.
87. The first federal antitrust law enacted in the United States was:
a.
The Clayton Act.
b.
The Sherman Antitrust Act.
c.
The Robinson–Patman Act.
d.
The Federal Trade Commission Act.
e.
The Herfindahl–Hirschman Act.
88. The Sherman Act _____.
a.
prohibited restraint of trade
b.
created the Federal Trade Commission
c.
prohibited fraudulent advertising
d.
regulated the railroads
e.
exempted insurance companies from antitrust laws
89. Which of the following is not prohibited by the Clayton Act?
a.
Merger through the acquisition of assets, which substantially lessens competition
b.
Price discrimination that substantially lessens competition
c.
Tying contracts that substantially lessen competition
d.
Exclusive dealing that substantially lessens competition
e.
Interlocking directorates that substantially lessen competition
90. The purchase of assets of one steelmaker by another steelmaker might be a violation of the _____.
a.
Clayton Act
b.
Federal Trade Commission Act
c.
Wheeler–Lea Act
d.
Celler–Kefauver Anti-Merger Act
e.
Robinson–Patman Act
91. Which of the following is the main criticism of the Sherman Act?
a.
The Sherman Act has been criticized to be overly harsh.
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Chapter 15: Economic Regulation and Antitrust Policy
b.
The Sherman Act has been criticized to be unnecessary at the time.
c.
The Sherman Act has been criticized to be too vague.
d.
The Sherman Act has been criticized to be identical to an existing law.
e.
The Sherman Act has been criticized to have come into effect too late.
92. Which of the following acts of Congress declared restraint of trade illegal and declared any attempt at monopolizing
unlawful?
a.
The Celler–Kefauver Anti-Merger Act
b.
The Sherman Antitrust Act
c.
The Clayton Act
d.
The Wheeler–Lea Act
e.
The Clayton–Celler Act
93. Which agency was created by Congress in 1914 to investigate and regulate unfair methods of competition?
a.
The Department of Justice
b.
The Federal Trade Commission
c.
The Interstate Commerce Commission
d.
The General Accounting Office
e.
The Council on Competitiveness
94. Which law was passed to outlaw certain practices not prohibited by the Sherman Antitrust Act?
a.
The Clayton Act
b.
The Smoot-Hawley Act
c.
The Celler–Kefauver Anti-Merger Act
d.
The Wheeler–Lea Act
e.
The Federal Trade Commission Act
95. Which act of Congress declared tying contracts, exclusive dealing, and price discrimination illegal?
a.
The Wheeler–Kefauver Act
b.
The Sherman Antitrust Act
c.
The Clayton Act
d.
The Wheeler–Lea Act
e.
The Celler–Kefauver Anti-Merger Act
96. Which act of Congress extended the government's authority to block horizontal and vertical mergers?
a.
The Clayton Act
b.
The Sherman Antitrust Act
c.
The Wheeler-Lea Act
d.
The Celler–Kefauver Anti-Merger Act
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e.
The Herfindahl–Hirschman Act
97. A camera manufacturer sells its cameras only to retailers who agree to buy the brand of film it sells. This is an
example of _____.
a.
price discrimination
b.
exclusive dealing
c.
a tying contract
d.
an interlocking directorate
e.
a trust
98. Ersatz Kreme will sell its donut filling to Hunky Donuts only if Hunky Donuts agrees not to buy donut filling from
other suppliers. This is an example of _____.
a.
price discrimination
b.
exclusive dealing
c.
a tying contract
d.
an interlocking directorate
e.
a trust
99. Exclusive dealing occurs when:
a.
one individual serves on more than one board of directors.
b.
one individual serves on only one board of directors.
c.
a producer sells spark plugs to a car manufacturer with the understanding that the manufacturer will buy spark
plugs only from that producer.
d.
a seller offers a good for sale to an individual (or a limited group) on substantially better terms than is
available to the general public.
e.
a producer of spark plugs requires that customers also purchase rotors when they buy spark plugs.
100. A requirement that buyers of one service must also purchase another service from the same seller is called _____.
a.
exclusive dealing
b.
an interlocking merger
c.
a vertical merger
d.
a tying contract
e.
a legal agreement
101. Which of the following U.S. antitrust laws prohibits mergers through the acquisition of a firm's stock if the merger
would lessen competition?
a.
The Sherman Antitrust Act
b.
The Clayton Act
c.
The Robinson–Patman Act
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Chapter 15: Economic Regulation and Antitrust Policy
d.
The Celler–Kefauver Anti-Merger Act
e.
The Federal Trade Commission Act
102. Which of the following best illustrates a vertical merger?
a.
GM merges with Chrysler.
b.
Nike merges with Kraft Foods.
c.
Microsoft merges with Dell.
d.
UPS merges with FedEx.
e.
Apple merges with IBM.
103. _____ handle antitrust matters in the U.S.
a.
The Department of Justice and Congress
b.
The Federal Trade Commission and Congress
c.
The Federal Trade Commission and the Securities and Exchange Commission
d.
The Department of Justice and the Council of Economic Advisors
e.
The Department of Justice and the Federal Trade Commission
104. Under the U.S. antitrust law, a consent decree allows a firm to:
a.
admit to an antitrust violation without penalty
b.
admit to an antitrust violation without a lawsuit
c.
challenge the government's accusation in court
d.
cease the alleged wrongdoing without admitting guilt
e.
cease the alleged wrongdoing after admitting guilt
105. If those accused of antitrust violations sign a consent decree, they have:
a.
agreed to stop doing what they have been accused of doing.
b.
admitted guilt.
c.
agreed to a court trial.
d.
contested the charges against them.
e.
charged the government with wrongdoing.
106. If firms accused of antitrust violations sign a consent decree, they have:
a.
admitted guilt and accepted the lawful penalties.
b.
admitted guilt but are relieved of any penalties by agreeing to cease the alleged wrongdoing.
c.
agreed to cease the alleged wrongdoing without admitting guilt.
d.
denied the accusation and requested a formal hearing or trial.
e.
denied the accusation and given proof that it is untrue.
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107. The rule of reason:
a.
applies to business practices that are illegal regardless of their economic rationale or their consequences.
b.
applies to business practices that are legal regardless of their consequences.
c.
is based on the idea that business practices cannot be proven to be illegal, and a consent decree is required to
halt the practices.
d.
considers why a certain business practice was adopted and what the effects on competition are before
determining whether the practice is illegal.
e.
focuses on market structure rather than on the behavior of firms in determining whether antitrust violations
have occurred.
108. According to the rule of reason doctrine, which of the following companies could be found guilty of violating
antitrust laws?
a.
General Motors, which colludes with Ford to fix the price of its cars
b.
Coke, which colludes with Pepsi to limit the quantity of soft drinks in the market
c.
Intel, which dominates the market for computer processors with a 95percent market share
d.
Reynolds American, Inc., which enters into an agreement with Lorillard, Inc. to limit the introduction of new
cigarette brands
e.
McDonalds, which agrees to increase its prices by 10percent
109. Antitrust laws in the United States:
a.
have been enforced in an inconsistent manner.
b.
clearly define acceptable behavior.
c.
apply only to natural monopolies.
d.
involve suing a competitive firm for changing its prices.
e.
provide protection to those in regulated industries.
110. Which of the following actions would not violate the Sherman Antitrust Act if the rule of reason was used to
interpret the act?
a.
Conspiring to monopolize
b.
Forming a trust
c.
Practicing price discrimination leading to a decrease in competition in the market
d.
Serving the entire market without an intention of monopolizing
e.
Attempting to restrain trade with a foreign nation
111. Acting under a per se rule, the U.S. courts need only examine:
a.
the market structure.
b.
the offending firm’s behavior.
c.
market performance.
d.
the offending firm’s balance sheet.
e.
the offending firm’s stock price.
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112. Under the rule of reason, a U.S. firm with an 80 percent market share:
a.
will always be found in violation of the Sherman Antitrust Act.
b.
will never be found in violation of the Sherman Antitrust Act.
c.
may be found in violation of the Sherman Antitrust Act depending on its conduct.
d.
will always be found in violation of the Sherman Antitrust Act if there is only one more firm in the industry.
e.
will be found in violation of the Sherman Antitrust Act if there are other firms in the industry.
113. According to the U.S. Supreme Court's 1920 ruling on U.S. Steel, _____.
a.
all monopolies are illegal
b.
all oligopolies violate the Sherman Antitrust Act
c.
large firms cannot be found to be in violation of the Sherman Antitrust Act
d.
mere size is no offense
e.
possession of market power is sufficient for a firm to be found in violation of the Sherman Antitrust
114. According to the U.S. Supreme Court's 1945 ruling on Alcoa, _____.
a.
all monopolies are legal
b.
price-fixing agreements are illegal under the rule of reason
c.
small firms can be found to be in violation of the Sherman Antitrust Act
d.
mere size is no offense.
e.
possession of market power is sufficient for a firm to be found in violation of the Sherman Antitrust Act
115. Anticompetitive business practices are illegal per se:
a.
only if there is no economic rationale for them.
b.
only if they result in a monopoly.
c.
without regard to their economic rationale or consequences.
d.
only if they are prohibited by the Clayton Act.
e.
whether or not Congress has passed legislation prohibiting them.
116. If a court employs the rule of reason while considering whether a firm is guilty of violating antitrust laws, the court
a.
considers the consequences of the offending practice that the firm engaged in.
b.
does not consider why the offending practice was adopted or its effect on competition.
c.
ignores the economic rationale for the offending practice and its consequences.
d.
need only determine that the offending practice took place.
e.
considers only whether the firm has market power, not whether it used that power unreasonably.
117. Which of the following most accurately describes the types of mergers that antitrust laws are intended to prohibit?
a.
Mergers that tend to reduce competition
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b.
Horizontal mergers
c.
Both vertical and horizontal mergers
d.
Conglomerate mergers
e.
Vertical mergers
118. Holey Doughnuts and Clair's Eclairs want to merge. Each has a 2 percent share in the local pastry market. It is most
likely that:
a.
the Department of Justice will challenge the merger but the Federal Trade Commission will not.
b.
the Federal Trade Commission will challenge the merger but the Department of Justice will not.
c.
the merger will go unchallenged because it will not tend to reduce competition.
d.
the government will successfully challenge the merger because it is a horizontal merger.
e.
the government will successfully challenge the merger because it is a vertical merger.
119. Among the following markets, the market with _____ is likely to have the highest Herfindahl index.
a.
ten firms of widely different sizes
b.
ten firms of approximately the same size
c.
five firms of widely different sizes
d.
five firms of approximately the same size
e.
eight firms that are exactly the same size
120. In order to calculate the Herfindahl index, _____.
a.
the market shares of all firms in an industry do not need to be known.
b.
the market shares of any four firms in an industry need to be added.
c.
the market shares of the four largest firms in an industry need to be added.
d.
the market shares of all firms in an industry need to be known.
e.
the market shares of the four largest firms in an industry need to be squared and added.
121. If the Herfindahl index is the same in two industries, we can conclude that:
a.
the number of firms in each industry is the same.
b.
the number of firms in the two industries is not the same.
c.
the sum of the squared market shares of all firms is the same in the two industries.
d.
there must be an identical distribution of market shares among the firms in the two industries.
e.
there are only two firms in each industry.
122. There are five firms in the cresset industry. The market shares of the five firms are 60 percent, 15 percent, 15 percent,
6 percent, and 4 percent. The Herfindahl index is _____.
a.
96
b.
4,086
c.
10,000
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d.
4,102
e.
4,100
123. There are six firms in Industry A. The market shares of the four largest firms are 50 percent, 20 percent, 10 percent,
and 7 percent. The Herfindahl index is _____.
a.
87
b.
4,149
c.
10,000
d.
3,081
e.
impossible to calculate because the data for the fifth and sixth firms are not given
124. Market shares of all eight firms in an industry are 50 percent, 20 percent, 14 percent, 6 percent, 4 percent, 3 percent,
2 percent, and 1 percent. The Herfindahl index is _____.
a.
1,100
b.
2,150
c.
3,155
d.
3,162
e.
5,326
125. If an industry consists of only four firms with equal market shares, then the Herfindahl index is _____.
a.
25
b.
10,000
c.
100
d.
2,500
e.
50
126. If an industry consists of only two firms with equal market shares, then the Herfindahl index is:
a.
50.
b.
100.
c.
2,500.
d.
5,000.
e.
10,000.
127. The largest value the Herfindahl index can have is:
a.
100.
b.
10.
c.
100,000.
d.
10,000.
e.
infinity.
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128. If an industry currently has a Herfindahl index of 900 and a merger would raise that to 950, then the Department of
Justice would:
a.
challenge the merger because the index would become too large.
b.
challenge the merger because the change in the index is too large.
c.
not challenge the merger because the post-merger index would be less than 2,500.
d.
not challenge the merger if it is a horizontal merger.
e.
challenge the merger if it is a vertical merger.
129. The index that the U.S. government currently uses to determine whether a merger should be allowed is the _____.
a.
Herfindahl–Hirschman index
b.
Schumpeter index
c.
Dow Jones average index
d.
consumer price index
e.
four-firm concentration ratio
130. Under current guidelines, the U.S. Department of Justice usually challenges:
a.
all mergers.
b.
mergers in industries that would have a post-merger Herfindahl index greater than 1,800.
c.
mergers in industries that would have a post-merger Herfindahl index greater than 2,500 if the Herfindahl
index increases by more than 200 points due to the merger.
d.
mergers in industries that would have a post-merger Herfindahl index greater than 1,000.
e.
mergers in industries that would have a post-merger Herfindahl index greater than 1,000 if the Herfindahl
index increases by more than 100 points due to the merger.
131. If a firm with a 20 percent market share merges with a firm with a 5 percent market share and the other firms have
market shares of 40 percent, 15 percent, 10 percent, and 10 percent, respectively, the Herfindahl index will _____.
a.
rise by 100
b.
rise by 200
c.
fall by 100
d.
fall by 200
e.
rise by 25
132. If a firm with a 10 percent market share merges with a firm with a 15 percent market share and the other firms have
market shares of 40 percent, 15 percent, 10 percent, and 10 percent, respectively, the Herfindahl index will _____.
a.
rise by 100
b.
rise by 300
c.
fall by 200
d.
fall by 250
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e.
rise by 25
133. According to the current Justice Department guidelines, a merger in an industry is not likely to be challenged if the:
a.
merger increases the Herfindahl index to above 1,800.
b.
industry has a pre-merger Herfindahl index of below 1,500.
c.
industry has a pre-merger Herfindahl index of greater than 1,800.
d.
industry has a pre-merger Herfindahl index of less than 1,000.
e.
industry has a pre-merger Herfindahl index equal to 10,000.
134. If there are only three firms in an industry with 50 percent, 40 percent, and 10 percent of the market share,
respectively, the Herfindahl Index is _____.
a.
40
b.
100
c.
200
d.
33
e.
4,200
135. If two large firms from different industries merge, _____.
a.
industry concentration rises
b.
industry concentration falls
c.
the value of the HHI increases by more than 200 points
d.
industry concentration rises in one market and falls in the other
e.
industry concentration is not affected
136. In 1998, the U.S. Justice Department filed a suit against Microsoft alleging that Microsoft tried to protect its
monopoly in the market for operating systems and extend that monopoly to the market for internet software. This is an
example of:
a.
predatory pricing.
b.
antitrust enforcement.
c.
economic regulation.
d.
social regulation.
e.
the regulatory dilemma.
137. Suppose a person serves on the boards of directors of competing firms. The term used to describe this practice is
_____.
a.
interlocking directorate
b.
arbitration
c.
free riding
d.
exclusive dealing
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e.
mediation
138. According to William Shepherd's examination of competitive trends in the U.S. economy, a dominant firm:
a.
is usually a pure monopoly.
b.
is a firm with over half the market share and no close rival.
c.
is one of four firms that together supply more than 60 percent of the market.
d.
is a firm that sells a product with many close substitutes.
e.
is one of four firms that work together to block entry into the market.
139. A tight oligopoly refers to:
a.
a single firm that controls the entire market and can block entry.
b.
an industry in which the top four firms supply more than 60 percent of the market, have stable market shares,
and cooperate with each other.
c.
an industry in which the top four firms supply more than 60 percent of the market, have unstable market
shares, and do not cooperate with each other.
d.
an industry in which a single firm has over half the market share and no close rival.
e.
an industry in which a single firm supplies over one-third of the entire market, the market share is stable, and
the firm cooperates with other firms in the industry.
140. Which of the following is an example of an effectively competitive market?
a.
A market in which the top four firms supply more than 60 percent of the market, have stable market shares,
and cooperate with each other
b.
A market in which the top four firms supply more than 60 percent of the market, have stable market shares,
and compete with each other
c.
An industry that exhibits low concentration, few barriers to entry, and little or no collusion
d.
An industry that exhibits low concentration and little or no collusion despite significant barriers to entry
e.
A market in which the dominant firm has two close rivals
141. Which of the following led to an increase in competition in the United States between 1958 and 1988?
a.
An increase in exports
b.
A regulated economy
c.
Ill-defined antitrust policy
d.
Import quotas implemented by the government
e.
An increase in imports
142. Which of the following did not lead to an increase in competition in the United States between 1958 and 1988?
a.
Antitrust activity
b.
Deregulation of transportation industries
c.
Deregulation of the banking sector
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d.
Increased imports
e.
Conglomerate mergers
143. According to _____, competition in the U.S. economy increased between 1958 and 2000 due to a reduction in
government intervention.
a.
Kenneth Arrow
b.
George Akerlof
c.
Sir William Ashley
d.
Thomas Attwood
e.
William Shepherd
144. According to Shepherd, the percentage of industries that were effectively competitive in 1988 was approximately
_____.
a.
25 percent
b.
50 percent
c.
64 percent
d.
77 percent
e.
89 percent
145. U.S. producers faced certain disadvantages as imports rose in 13 major industries studied by Shepherd. The
producers initially responded to this by:
a.
improving the technology used in production.
b.
exiting the industry.
c.
seeking trade barriers.
d.
removing trade barriers.
e.
raising prices to recoup their losses.
146. Which of the following statements is true?
a.
Increased international trade has resulted in increased competition in the U.S. economy.
b.
Greater monopolization of industries in the U.S. economy has increased competition.
c.
U.S. producers responded to trade disadvantages in the eighteenth century by exiting the industry.
d.
Increase in imports accounted for one-fifth of the increase in competition.
e.
Two-fifths of the growth in competition between 1958 and 2000 occurred due to deregulation.
147. According to Shepherd, trucking, _____, securities trading, banking, and telecommunications were among the
industries deregulated between 1958 and 2000.
a.
advertising
b.
airlines
c.
agriculture
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d.
education
e.
construction
148. Which of the following is a possible drawback of the growth of international trade in the U.S?
a.
It has led to an increase in the number of goods available to consumers.
b.
It has led to a decrease in the prices of products.
c.
It has made the local or even national market share less relevant.
d.
It has led to an increase in the demand for domestic goods.
e.
It has led to an increase in the prices of domestic goods.
149. With an increase in global competition and free trade, _____.
a.
antitrust policy has become stricter
b.
antitrust policy is now less necessary than previously thought
c.
U.S. industrial concentration poses more of a threat to consumers
d.
U.S. markets have become less contestable
e.
U.S. manufacturers are now seeking fewer trade barriers
150. Which of the following is not a problem with antitrust policy?
a.
Technological change that fosters competition
b.
Antitrust abuses
c.
Growth of international markets
d.
Government measures to bail out troubled industries
e.
Increasing market shares of local firms
