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800 Miller Economics Today, 16th Edition
9) Which of the following is an example of an agency concerned with social regulation?
A) Federal Communications Commission B) Securities and Exchange Commission
C) Consumer Product Safety Commission D) Federal Energy Regulatory Commission
10) Which of the following statements can correctly be made about social regulation?
I. Extensive social regulation may have an anticompetitive effect.
II. The benefits of social regulation are easier to measure than are the costs of social regulation.
A) I only B) II only C) Both I and II D) Neither I nor II
11) A creative response to regulations can be described as
A) conforming to the letter of the law but undermining its spirit.
B) totally conforming to the law.
C) completely ignoring the law.
D) none of the above.
12) In some cases, social regulation may alter individuals behavior. For example, there is evidence
to indicate that as more automobile safety regulations have been introduced, more individuals
have begun to drive recklessly. This phenomenon is known as
A) the feedback effect. B) the share the gains effect.
C) the share the pains effect. D) the capture effect.
13) Which of the following refers to the capture hypothesis of regulation?
A) The ability of the government to capture monopoly profits
B) The control of regulatory agencies by firms in an industry
C) Consumer cost savings captured through regulation
D) Horizontal mergers
14) The notion that regulated industry members themselves, sooner or later, are able to control
regulatory bodies is referred to as
A) consumerism. B) cartelization.
C) the capture theory. D) the control theory.
15) The capture hypothesis suggests that
A) marginal cost regulation is superior to average cost regulation.
B) the well focused interests of consumers will lead to the over regulation of most
industries.
C) the firms being regulated will unduly influence the regulators.
D) regulation will lead to over entry and eventual losses for firms in the industry.
16) The capture in the capture hypothesis occurs because
A) regulators try to promote everyone s best interest.
B) society doesn t care for regulatory agencies.
C) regulators always know what is in society s best interest.
D) regulators usually have been or will be associated with the industries they regulate.
17) According to the capture hypothesis,
A) regulators eventually support the views of consumers instead of the firms or the
taxpayers, regardless of the reasons why the regulatory agency was established.
B) regulators support the view of the regulated firms all along because that is the reason the
regulatory agency was established.
C) regulators eventually support the views of the regulated firms instead of the consumers or
taxpayers, regardless of why the regulatory agency was established.
D) regulators eventually support the views of either the firms or the consumers, but at the
expense of the taxpayers, regardless of the reasons why the regulatory agency was
established.
18) According to the capture hypothesis, it appears that regulators eventually end up
A) adopting policies that benefit the firms being regulated.
B) adopting policies that benefit consumers at the expense of the regulated firms.
C) adopting policies that benefit no one.
D) satisfying neither producers nor consumers, but striving to control as much as possible.
19) The hypothesis that regulators eventually are controlled by the regulated firms and their special
interests is the
A) share the gains, share the pains hypothesis.
B) capture hypothesis.
C) public interest theory.
D) control group hypothesis.
20) The behavior of regulators when trying to win approval for their actions from their entire
constituency is best described by the
A) capture hypothesis.
B) law of increasing social well
b
eing.
C) share the gains, share the pains hypothesis.
D) marginal benefit pricing hypothesis.
21) The argument that suggests that regulators balance the interests of firms, consumers, and
legislators is called
A) the capture hypothesis.
B) the creative response theory.
C) the share the gains, share the pains theory.
D) the theory of optimal regulation.
22) A theory of regulatory behavior, which states that regulators must take into account the
preferences of legislators, producers, and consumers, is the
A) capture theory.
B) share the gains, share the pains theory.
C) public interest theory.
D) general interests theory.
23) According to your text, the annual cost of regulation (federal, state and local) in the United
States is estimated to exceed ________ per year.
A) $500 million B) $900 million C) $50 billion D) $1 trillion
24) The feedback effect can be thought of as a type of
A) social regulation.
B) economic regulation.
C) creative response, which reduces the law s effectiveness.
D) regulatory lag.
25) Suppose a dangerous workplace is made safer through the installation of guards and other
equipment that reduce the physical hazards of the work environment. If we observe no
reduction in injuries, we might conclude that
A) the safety equipment isn t adequate and better equipment should be installed.
B) the firm has responded by lowering wages and hiring less capable people who are more
likely to be injured.
C) the injury rate before installation of the safety equipment had been underreported.
D) workers responded to the safer environment by not exercising as much care themselves,
generating more injuries than if they had not changed their behavior.
26) Regulators often adopt policies that benefit
A) consumers and injure producers.
B) the firms regulated rather than consumers.
C) only the government.
D) no one.
27) The hypothesis that regulators eventually adopt policies that benefit the producers in the
industry is known as the
A) capture hypothesis.
B) producers hypothesis.
C) share the gains, share the pains hypothesis.
D) it s a rip off hypothesis.
28) Under the U.S. system of regulation, most regulars are selected from
A) politicians and their friends.
B) the industry that is to be regulated.
C) consumer advocacy groups.
D) university professors who understand the nature of the industry and who understand the
true interests of consumers.
29) According to the capture hypothesis of regulation,
A) regulation favors producers over consumers because the producers were able to pay off
the regulators.
B) regulation eventually favors producers over consumers because the producers have more
at stake than individual consumers.
C) regulation benefits the regulators and the legislators who support the regulation by
enabling them to obtain favors from both producers and consumers.
D) regulation benefits the consumers over producers because the number of consumers is
greater than the number of producers, giving the consumers more political clout.
30) Economists who think the capture theory explains regulatory behavior will support their claims
by noting that
A) regulation as carried out in this country generates larger profits for the firms and does not
generate lower prices for consumers.
B) consumers actually dominate regulatory hearings through the influence of consumer
advocacy groups.
C) Congress ensured that consumers have more influence on the decisions of regulators by
setting up the agencies in ways that insulated the regulators from the regulated firms.
D) the firms that are regulated have greater incentive to try to influence regulators than do
consumers.
31) According to the ________ theory of regulation, regulators must take into account the
preferences of legislators, consumers, and producers.
A) capture B) general interest
C) public interest D) share the gains, share the pains
32) The primary motive of regulators, according to the share the gains, share the pains theory, is
to
A) maximize their income through accepting monetary payoffs from groups.
B) ensure that every group gets what it wants.
C) ensure that all customers share the benefits of regulation, and not just the wealthiest
consumers.
D) keep their jobs.
33) Suppose technical change makes it cheaper for cable television suppliers to supply their service.
The capture theory would predict that the regulators would
A) allow the firms to capture the savings and would lower price only if the firms asked them
to.
B) force the firms to pass the savings on to consumers in the form of lower prices.
C) force the firms to pass the savings on to consumers in the form of better service.
D) force the firms to pass some of the savings on to consumers and permit them to keep some
of the savings for themselves.
34) Suppose technical change permits cable television companies to provide their services at lower
rates. The share the gains, share the pains theory would predict that the regulators would
A) permit the firms to keep the savings and would lower prices only if the firms were
pressured to do so.
B) force the firms to pass all the savings on to consumers in the form of lower prices.
C) force the firms to pass the savings on to consumers in the form of better service.
D) force the firms to pass some of the savings on to consumers and to permit the firms to keep
some of the savings themselves.
35) Suppose that a regulated industry experiences an increase in the price of inputs used to produce
the good. According to the capture theory, we would expect
A) prices to increase by a little immediately and profits to decrease by a lot.
B) there will be some increase in price but not immediately.
C) no increase in price.
D) a quick increase in price maintains profits in the industry.
36) An automobile manufacturer voluntarily recalls certain models to fix a defective part at no cost
to the owners. This action has the effect of
A) the lemon problem. B) a manufacturer s warranty.
C) a market failure. D) none of the above
37) Suppose that a regulated industry experiences an increase in the price of inputs used to produce
the good. According to the share the gains, share the pain theory, we would expect
A) prices to increase by a little immediately and profits to decrease by a lot.
B) there will be some increase in price but not immediately.
C) no increase in price.
D) a quick increase in price maintains profits in the industry.
38) 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?
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.
39) The costs of regulation
A) include increased taxes and increased prices of the products being regulated.
B) are paid entirely by the regulated industries.
C) are more than covered by the benefits gained from the regulation.
D) are relatively small.
40) The total costs of regulation
A) include increased taxes and increased prices of the products being regulated.
B) are paid entirely by the regulated industries.
C) much higher than just the explicit government outlays to fund the administration of
various regulations.
D) are paid entirely by the consumers of regulated industries.
41) The total costs of federal regulation
A) encompasses only explicit costs of satisfying regulatory demands.
B) also includes the explicit costs associated with regulations issued by 50 different state
governments.
C) encompasses only opportunity costs of satisfying regulatory demands.
D) encompasses both explicit and opportunity costs of satisfying regulatory demands..
42) One undesirable effect of social regulation is that it
A) affects smaller firms disproportionately, creating anticompetitive effects.
B) destroys incentives for firms to engage in marginal cost pricing.
C) raises prices of goods to consumers, while lowering prices to business and special interest
groups.
D) reduces the effectiveness of economic regulation.
43) 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
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.
44) Behavior on the part of the firm that allows it to comply with the letter of the law but violate the
spirit reducing the law s effect is
A) asymmetric information. B) creative response.
C) the lemons problem. D) only a problem in a monopoly.
45) Which of the following is FALSE with respect to regulation?
A) Regulated firms commonly try to avoid the effects of regulation whenever they can.
B) Firms engage in creative responses which conform to the letter of the law but undermine
its spirit.
C) Regulation has resulted in state laws that have made creative response illegal in many
states.
D) Recent regulations have generated feedback effects that undermined the key aim of the
rules.
46) The theory of regulatory behavior that predicts that the regulators eventually will become
controlled by the regulated is called
A) the capture hypothesis.
B) the the share the gains, share the pains hypothesis.
C) the asymmetric information hypothesis.
D) the market failure hypothesis.
47) U.S. securities firms recently agreed to pay a record amount of $1.4 billion in settlement charges
brought by government regulators. Regulators claimed that firms had abused investors during
the market boom of the 1990s. Abuses included analysts tailoring their research reports and
ratings on the stocks they covered in order to win more business for their firm. If this settlement
causes Wall Street firms to comply with the letter of the law but they violate the spirit of the law,
the firms are engaging in
A) elimination of conflicts of interest. B) creative response.
C) the capture hypothesis. D) deregulation.
48) Acme Inc. found a tricky way to conform to the letter of the law with respect to new EPA
regulations, even though they violated the spirit of the law. This is called
A) the capture theory.
B) collusive response.
C) share the gains, share the pains theory.
D) creative response.
49) The theory of regulatory behavior that suggests that regulators must consider the demands of
legislators, consumers, and members of the regulated agency is called
A) the capture theory.
B) share the gains, share the pains theory.
C) the natural theory.
D) the creative theory.
50) When regulators identify with the special interests of the industry they regulate, this behavior
conforms with the
A) share the gains, share the pains hypothesis.
B) rate of return hypothesis.
C) lemon market hypothesis.
D) capture hypothesis.
51) The theory that regulators behavior will eventually be compromised by the special interests
they regulate is known as the
A) capitulation hypothesis. B) creative hypothesis.
C) captive hypothesis. D) capture hypothesis.
52) When the fox is guarding the henhouse, that is an example of the
A) share the gains, share the pains theory.
B) regulatory hypothesis.
C) capture hypothesis.
D) creative theory.
53) When a regulator is concerned about pleasing different groups in order to keep employed, this
is known as the
A) share the gains, share the pains theory.
B) regulatory hypothesis.
C) capture hypothesis.
D) creative theory.
54) The cost of complying with regulation
A) shifts the ATC curve upward.
B) shifts the MC curve downward.
C) shifts the demand curve to the right.
D) increases the products price elasticity of demand.
55) Regarding the costs of regulation, which is a FALSE statement?
A) Airline safety standards have increased the price of air travel.
B) Automobile safety standards raise the price of cars.
C) Regulatory spending by federal agencies has decreased since 1970.
D) Pharmaceutical manufacturing safety standards raise the price of drugs.
56) The total cost of federal regulation includes
A) the funding of government agencies overseeing compliance, the compliance cost for the
regulated firms, and the opportunity cost of regulation for the firms.
B) the funding of government agencies overseeing compliance less the compliance cost for
the regulated firms and the opportunity cost of regulation for the firms.
C) only the cost of compliance by the regulated firms.
D) only the funding of the regulatory agencies.
57) How does social regulation differ from economic regulation?
58) Suppose OSHA requires a factory to install specific safety equipment to reduce the number of
injuries in the factory. Would the number of accidents necessarily decline? Why or why not?
59) Explain the share the gains, share the pains theory. How does it differ from the capture
hypothesis?
60) Explain the capture hypothesis.
61) A common feature of regulated industries is cross subsidization, which is a situation when one
group of customers pays prices above costs while another group of customers pays prices below
costs. The one group is subsidizing the other group. Is this practice more consistent with the
capture hypothesis or the share the gains, share the pains theory? Explain.
62) Regulations do not always have the intended result. Do you agree or disagree? Why?
63) As compared to the benefits of economic and social regulation, the costs are minimal. Do you
agree or disagree? Why?
27.5 Antitrust Policy
1) Government policy that attempts to prevent collusion among the sellers of a product and
attempts to prevent restraint of trade is known as
A) social policy. B) antitrust policy.
C) inherent policy. D) goodwill policy.
2) The first major law created to control the growth of monopoly power was the
A) Sherman Act. B) Clayton Act.
C) FTC Act. D) Robinson Patman Act.
3) Which of the following is NOT an antitrust law?
A) The Robinson Patman Act B) The Smoot Hawley Act
C) The FTC Act D) The Sherman Act
4) One weakness of the Sherman Act is that
A) it fails to clearly define restraint of trade.
B) it applies only to foreign monopolies.
C) it applies only to the steel and railroad industries.
D) none of the above
5) The U.S. Justice Department prosecuted Microsoft under the terms of
A) the Sherman Act.
B) the Kefauver amendment.
C) the 1933 amendment to the Federal Trade Commission Act.
D) none of the above.
6) A major shortcoming of the Sherman Act was that
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.
7) The first antitrust law in the United States was the
A) FTC Act. B) Clayton Act.
C) Sherman Act. D) Robinson Patman Act.
8) The primary antitrust statute in the United States is the
A) NLRA of 1935. B) SEC Act of 1933.
C) Sherman Antitrust Act of 1890. D) Federal Reserve Act of 1913.
9) Which of the following would most likely promote competitive pricing of products?
A) Robinson Patman Act B) Wheeler Lea Act
C) Federal Trade Commission Act D) Clayton Act
10) The Federal Trade Commission regulates which of the following?
A) Unfair trade practices by businesses B) Financial markets
C) Trade with third world countries D) The banking industry
11) The Federal Trade Commission Act was designed to
A) prohibit bundling.
B) increase foreign trade.
C) prohibit cutthroat pricing.
D) limit company profits from foreign sales.
12) The Federal Trade Commission Act, as amended, prohibits
A) horizontal mergers.
B) price fixing agreements.
C) unfair competitive practices and deceptive acts.
D) price discrimination.
13) The Federal Trade Commission was established in 1914 to
A) regulate trade of public goods.
B) promote competition in interstate commerce.
C) investigate unfair competitive practices.
D) prevent non price competition.
14) The regulatory agency most concerned with false advertising is the
A) Antitrust Division of the Justice Department.
B) National Labor Relations Board.
C) Federal Deposit Insurance Corp.
D) Federal Trade Commission.
15) Which antitrust act was passed to protect independent retailers from unfair discrimination by
chain stores?
A) Federal Trade Commission Act B) Robinson Patman Act
C) Sherman Act D) Wheeler Lea Act
16) Which antitrust law is sometimes called the Chain Store Act ?
A) Sherman Act B) Clayton Act
C) Robinson Patman Act D) Federal Trade Act
17) All of the following are exempt from antitrust laws EXCEPT
A) labor unions. B) professional baseball.
C) oil companies. D) public utilities.
18) Which of the following is NOT exempt from antitrust laws?
A) Professional baseball B) Labor unions
C) Airlines D) Public transit systems
