Microeconomics Chapter 27
The _________________________________ Act of 1914 and its 1938 amendment established the Federal Trade Commission and prohibited "unfair or deceptive acts or practices in commerce."
Federal Trade Commission
Antitrust enforcers must decide whether producers seek to monopolize the relevant market, which involves determining both the relevant ________________________ market and the relevant ___________________________ market.
product; geographic
Which of the following is not a key antitrust law? A. The Robinson-Patman Act. B. The Clayton Act. C. The Federal Trade Commission Act. D. The Sherman Act. E. The Contestable Markets Act.
E. The Contestable Markets Act.
______________________regulation applies to specific industries, whereas ________________ regulation applies to businesses throughout the economy.
Economic, Social
The __________________________________________ Act of 1936 aimed to prevent large producers from driving out small competitors by means of selective discriminatory price cuts.
Robinson-Patman
The first national antitrust law was the _____________________________ Antitrust Act of 1890, which made illegal every contract and combination in restraint of trade. It remains the single most important antitrust law in the United States.
Sherman
A common justification for government regulation is to protect consumers from adverse effects of ___________________ information.
asymmetric
Which of the following is true regarding the view of this type of business practice by U.S. antitrust authorities? A. This is viewed as similar to versioning. B. This practice enables a company to engage in price discrimination by charging different prices to different groups. C. Antitrust authorities are very tolerant of this practice. D. All of the above are true.
B. This practice enables a company to engage in price discrimination by charging different prices to different groups.
The first legislation enacted to control the creation and growth of monopoly in the U.S. was A. the Robinson-Patman Act. B. the Sherman Antitrust Act. C. the Clayton Act. D. the Federal Trade Commission Act.
B. the Sherman Antitrust Act.
The possibility that asymmetric information can lead to a general reduction in product quality in an industry is known as A. caveat emptor. B. the lemons problem. C. market failure. D. the free-rider problem.
B. the lemons problem.
Selling products in slightly altered forms to different groups of customers is known as ________, and it is ________ to constitute a form of price discrimination by U.S. antitrust authorities. A. bundling; not perceived B. bundling; perceived C. versioning, not perceived D. versioning; perceived
C. versioning, not perceived
A natural monopoly exists when A. a firm's demand curve is downward sloping. B. there is pure monopoly and the government grants an exclusive license to the firm. C. a firm is able to make long-run profits without inducing entry by other firms. D. a firm's long-run average cost curve is sloping down when it intersects the market demand curve.
D. a firm's long-run average cost curve is sloping down when it intersects the market demand curve.
A firm that sells both Internet-security software and computer antivirus software will sell the antivirus software as a stand-alone product. It will only sell the Internet-security software to consumers in a combined package that also includes the antivirus software. This business practice is called A. price discrimination. B. entry limit pricing. C. versioning. D. bundling.
D. bundling.
The effectiveness of regulation is mitigated when A. firms engage in creative response. B. individuals generate a "feedback effect." C. individuals reduce their vigilance toward safety when additional safety regulations are implemented. D. All of the above.
D. All of the above.
The government regulates monopolies because A. monopolies generate inefficiency by creating a misallocation of resources. B. monopolies produce less than the socially desirable level of output. C. monopolies price their output above the marginal cost of production. D. All of the above.
D. All of the above.
The government regulates monopolies because A. monopolies produce less than the socially desirable level of output. B. monopolies generate inefficiency by creating a misallocation of resources. C. monopolies price their output above the marginal cost of production. D. All of the above.
D. All of the above.
Antitrust laws in the United States -are the same as the laws in the European Union. -are not necessary in the twenty-first century. -have not been used in the past twenty-five years. -are an attempt to foster competition..
are an attempt to foster competition.
To address the _____________________________ problem, or the potential for ____________________________ -quality products to predominate when asymmetric information is widespread, governments often supplement private firms' guarantees, warranties, and certification standards with liability laws and licensing requirements.
lemons; low
As part of the enforcement of antitrust laws, officials at the U.S. Department of Justice and the Federal Trade Commission typically define a ___________________________ market and compute the change in and new level of the __________________________________ to assess whether to legally challenge a proposed merger.
relevant; Herfindahl-Hirschman Index
Market solutions to the lemons problem entail A. product certification. B. industry standards. C. product warranties. D. All of the above.
D. All of the above.
The Sherman Act outlaws A. monopolization. B. the existence of monopolies. C. price discrimination. D. mergers.
A. monopolization.
Regulation that keeps the rate of return in the industry competitive is known as -rate-of-return regulation. -cost-of-service regulation. -deregulation. -social regulation.
-rate-of-return regulation.
All U.S. businesses are subject to antitrust laws. A. True B. False
B. False
Under both U.S. and EU antitrust rules, antitrust authorities are obliged to block any business combination that increases the dominance of any producer, regardless of what factors might have caused the business's preeminence in the marketplace or whether the antitrust action might have adverse implications for consumers. A. True B. False
B. False
When firms engage in creative response to regulations, this amplifies the regulation's effects. A. True B. False
B. False
Which of the following are exempt from antitrust regulation? A. The automobile industry. B. Professional baseball. C. The communications industry. D. The steel industry.
B. Professional baseball.
The primary purpose of economic regulation is A. to control the quality of service provided by a monopolist. B. to control the price that regulated enterprises are allowed to charge. C. to force a firm to produce at the point where marginal cost equals marginal revenue. D. to focus on the impact of production on the environment and society, the working conditions under which goods and services are produced, and sometimes the physical attributes of goods.
B. to control the price that regulated enterprises are allowed to charge.
According to the share-the-gains, share-the-pains theory of regulation, regulators must take into account the interests of three groups: the __________, __________, and __________. A. industry; legislators; government B. industry; legislators; consumers C. firms; government; consumers D. government; legislators; consumers
B. industry; legislators; consumers
A cost-benefit test of proposed regulation should A. be eliminated since regulation has no costs. B. be eliminated since regulation has no benefits. C. be made to demonstrate net positive benefits or else the regulation should not be enacted. D. None of the above.
C. be made to demonstrate net positive benefits or else the regulation should not be enacted.
According to the capture hypothesis, regulators must take into account A. consumers. B. legislators. C. industry special interests. D. All of the above.
C. industry special interests.
The legal system typically defines monopoly by looking at a firm's A. adjusted taxable income. B. advertising budget. C. market share. D. sales revenues.
C. market share.
A firm complains that another firm's advertising is misleading. The firm would send its complaint to A. the EPA. B. the Robinson-Patman Agency. C. the Federal Trade Commission. D. the Justice Department.
C. the Federal Trade Commission.
The ________________________ Act of 1914 made illegal various specific business practices, such as price discrimination.
Clayton
To address asymmetric information problems, governments may A. offer legal remedies to consumers. B. establish a regulatory apparatus to oversee all aspects of an industry's operations. C. enforce licensing requirements designed to provide minimum product standards. D. All of the above
D. All of the above
Suppose technological change occurs so that a regulated firm could produce the product at substantially lower costs. Further, the regulatory agency requires the firm to lower prices to consumers, but the reduction in price is less than the reduction in costs so that profits for the firm increase too. This would be evidence in support of A. a public interest theory of regulation that says regulators always act in the best interests of consumers. B. no current theory of regulation. C. the capture theory of regulation. D. the share-the-gains, share-the-pains theory of regulation.
D. the share-the-gains, share-the-pains theory of regulation.
Using the United States as a whole would be inappropriate as the relevant geographic market when an antitrust case involved A. two oil producers. B. CNN and FOX. C. two auto producers. D. two homebuilders.
D. two homebuilders.
The capture hypothesis holds that regulatory agencies will eventually be captured by industry special interests because _______________ individually are not greatly influenced by regulation, whereas regulated _________________ are directly affected.
consumers; firms
The major goal of social regulation is Question 2 options: -to make sure that the firm produces at the socially optimal point of production. -a better quality of life through a less polluted environment, better working conditions, and safer and better products. -to make sure that prices are kept low enough so that every person can purchase the good. -to make sure that firms are not earning monopoly profits.
-a better quality of life through a less polluted environment, better working conditions, and safer and better products.
The Sherman Antitrust Act was passed to -prevent market price from equaling marginal cost. -protect the monopoly profits of firms. -control the growth of monopolies in the U.S. -protect companies from foreign competition.
-control the growth of monopolies in the U.S.
The Federal Trade Commission was established in 1914 to -prevent non-price competition. -promote competition in interstate commerce. -investigate unfair competitive practices. -regulate trade of public goods.
-investigate unfair competitive practices.
The two basic types of government regulation are -regulation of natural monopolies and regulation of cartels. -social regulation and labor law. -economic regulation and industry regulation. -social regulation and economic regulation.
-social regulation and economic regulation.
Financial markets are regulated by Question 3 options: -the Stock and Bond Exchange Commission. -the Security and Protection Commission. -the Stock and Exchange Commission. -the Securities and Exchange Commission.
-the Securities and Exchange Commission.
The total cost of federal regulation includes -only the cost of compliance by the regulated firms. -only the funding of the regulatory agencies. -the funding of government agencies overseeing compliance less the compliance cost for the regulated firms and the opportunity cost of regulation for the firms. -the funding of government agencies overseeing compliance, the compliance cost for the regulated firms, and the opportunity cost of regulation for the firms.
-the funding of government agencies overseeing compliance, the compliance cost for the regulated firms, and the opportunity cost of regulation for the firms.
In 2003, the U.S. government created a "Do Not Call Registry" and forbade marketing firms from calling people who placed their names on this list. Today, an increasing number of companies are sending mail solicitations to individuals inviting them to send back an enclosed postcard for more information about the firms' products. What these solicitations fail to mention is that they are worded in such a way that someone who returns the postcard gives up protection from telephone solicitations, even if they are on the government's "Do Not Call Registry." In what type of behavior are these companies engaging? Explain your answer. A. Creative response behavior. Firms legally satisfy the terms of the regulation but evade its intent. B. Creative response behavior. Firms creatively but illegally evade the intent of the regulation. C. Feedback effect behavior. Firms illegally use consumers' feedback response to evade the intent of the regulation. D. Feedback effect behavior. Firms legally satisfy the terms of the regulation but evade its intent.
A. Creative response behavior. Firms legally satisfy the terms of the regulation but evade its intent.
Social regulation is designed to cover specific industries. A. False B. True
A. False
The scope of the government's role as regulator of natural monopolies has increased with the expansion of natural monopolies in the electricity, natural gas, and telecommunications industries. A. False B. True
A. False
Which of the following is not an issue in enforcing antitrust laws? A. Marginal cost pricing. B. The laws are vague. C. International competition. D. Defining the relevant market.
A. Marginal cost pricing.
Which of the following are exempt from antitrust regulation? A. Professional baseball. B. The steel industry. C. The communications industry. D. The automobile industry.
A. Professional baseball.
A relevant market refers to a group of firms' products that are closely substitutible for one another and available to consumers in a particular geographic area. A. True B. False
A. True
One rationale for government involvement in nonmonopolistic industries is the possibility of market failures. A. True B. False
A. True
When assessing a potential horizontal merger, which of the following changes will raise antitrust concerns with federal enforcement agencies? A. a combined HHI change exceeding 100 and a postmerger HHI above 2,500 B. a combined HHI change exceeding 150 and a postmerger HHI above 1,500 C. a combined HHI change exceeding 200 and a postmerger HHI above 1,000 D. a combined HHI change exceeding 50 and a postmerger HHI above 2,000
A. a combined HHI change exceeding 100 and a postmerger HHI above 2,500
Asymmetric information refers to a situation in which A. a producer has product information that the consumer lacks. B. producers and consumers exchange information. C. producers and consumers have identical information. D. a consumer has product information that the producer lacks.
A. a producer has product information that the consumer lacks.
Average cost pricing by regulated monopolies A. allows the firm to make a "fair" rate of return. B. forces the firm to operate at a loss. C. permits long-run monopoly profits. D. None of the above.
A. allows the firm to make a "fair" rate of
Average cost pricing by regulated monopolies A. allows the firm to make a "fair" rate of return. B. forces the firm to operate at a loss. C. permits long-run monopoly profits. D. None of the above.
A. allows the firm to make a "fair" rate of return.
A natural monopoly exists when A. a firm's long-run average cost curve is sloping down when it intersects the market demand curve. B. a firm is able to make long-run profits without inducing entry by other firms. C. a firm's demand curve is downward sloping. D. there is pure monopoly and the government grants an exclusive license to the firm.
A. a firm's long-run average cost curve is sloping down when it intersects the market demand curve.
A cost-benefit test of proposed regulation should A. be made to demonstrate net positive benefits or else the regulation should not be enacted. B. be eliminated since regulation has no costs. C. be eliminated since regulation has no benefits. D. None of the above.
A. be made to demonstrate net positive benefits or else the regulation should not be enacted.
An unregulated natural monopolist will produce to the point where A. marginal revenue equals marginal cost. B. price equals marginal cost. C. marginal revenue equals demand. D. price equals long-run average cost.
A. marginal revenue equals marginal cost.
Suppose that half of all used cars offered for sale are high-quality autos and the other half are lemons. A consumer is willing to pay $12,000 for a high-quality used car but only $4,000 for a lemon. People who own truly high-quality used cars are only willing to sell at a price of at least 12,000, but people who own lemons are willing to sell at any price at or above $4,000. Because there is a 50-50 chance that a given car up for sale is of either quality, the average amount that a prospective buyer is willing to pay equals $8,000. In this market, A. only lemons will be traded, at a price of $4,000. B. only high-quality cars will be traded, at a price of $8,000. C. both high-quality cars and lemons will be traded, at prices of $12,000 and $4,000 respectively. D. both high-quality cars and lemons will be traded, each at a price of $8,000.
A. only lemons will be traded, at a price of $4,000.
Which of the following regulated industries is most likely to be considered a natural monoploy? A. public utilities B. banking C. insurance D. communication
A. public utilities
In practice, regulators generally A. require firms to set price equal to average cost. B. allow firms to do whatever they want. C. require firms to set price equal to marginal cost. D. require firms to make losses.
A. require firms to set price equal to average cost.
In order to reduce the lemons problem, government regulation should be in the form of A. social regulation, so as to minimize adverse market spillovers. B. a combination of social and economic regulation to get rid of all the lemons from the market. C. neither social nor economic regulation because the lemons problem cannot be eliminated. D. economic regulation, so as to improve the quality of the products sold.
A. social regulation, so as to minimize adverse market spillovers.
The federal regulatory agency that has jurisdiction over labor markets is A. the Equal Employment Opportunity Commission. B. the Federal Trade Commission. C. the Occupational Safety and Health Administration. D. the Securities and Exchange Commission.
A. the Equal Employment Opportunity Commission
The theory that regulators often end up adopting the views of the regulated is known as A. the capture hypothesis. B. the deregulation hypothesis. C. the share-the-gains, share-the-pains hypothesis. D. None of the above.
A. the capture hypothesis.
Protecting consumers from problems arising from asymmetric information is a rationale for A. the regulation of non-monopolistic industries. B. allowing corporate mergers. C. the regulation of natural monopolies. D. government ownership of the means of production.
A. the regulation of non-monopolistic industries.
The primary purpose of economic regulation is A. to control the price that regulated enterprises are allowed to charge. B. to control the quality of service provided by a monopolist. C. to force a firm to produce at the point where marginal cost equals marginal revenue. D. to focus on the impact of production on the environment and society, the working conditions under which goods and services are produced, and sometimes the physical attributes of goods.
A. to control the price that regulated enterprises are allowed to charge.
Using the United States as a whole would be inappropriate as the relevant geographic market when an antitrust case involved A. two homebuilders. B. CNN and FOX. C. two auto producers. D. two oil producers.
A. two homebuilders.
Which of the following is not a key antitrust law? A. The Sherman Act. B. The Contestable Markets Act. C. The Federal Trade Commission Act. D. The Clayton Act. E. The Robinson-Patman Act.
B. The Contestable Markets Act.
Asymmetric information refers to a situation in which A. producers and consumers exchange information. B. a producer has product information that the consumer lacks. C. a consumer has product information that the producer lacks. D. producers and consumers have identical information.
B. a producer has product information that the consumer lacks.
Local cable television companies are sometimes granted monopoly rights to service a particular territory of a metropolitan area. The companies typically pay special taxes and licensing fees to local municipalities. A local municipality gives monopoly rights to a cable company because these industries A. have constant average cost of production as their output increases; a characteristic of monopolistic competition. B. experience declines in their marginal cost of production as their output increases; a characteristic of duopoly. C. experience declines in their average cost of production as their output increases; a characteristic of natural monopoly. D. experience increases in their average cost of production as their output increases; a characteristic of a single-price monopoly.
C. experience declines in their average cost of production as their output increases; a characteristic of natural monopoly.
Lemon problems are likely to be more common in industries that sell A. products that have qualities that enable consumers to evaluate them even before purchasing. B. products that consumers must consume regardless of their quality. C. products that have qualities that are difficult for consumers to assess fully. D. products with qualities that are guaranteed to consumers.
C. products that have qualities that are difficult for consumers to assess fully.
The first legislation enacted to control the creation and growth of monopoly in the U.S. was A. the Robinson-Patman Act. B. the Clayton Act. C. the Sherman Antitrust Act. D. the Federal Trade Commission Act.
C. the Sherman Antitrust Act.
The theory that regulators often end up adopting the views of the regulated is known as A. the deregulation hypothesis. B. the share-the-gains, share-the-pains hypothesis. C. the capture hypothesis. D. None of the above.
C. the capture hypothesis.
Research into genetically modified crops has led to significant productivity gains for countries such as the United States that employ these techniques. Countries such as the European Union member nations, however, have imposed controls on the import of these products, citing concern for public health. The European Union's regulation of genetically modified crops is an example of A. lemons problem because there is a potential for asymmetric information. B. moral hazard problem if they want to reduce their risks of getting ill. C. share-the-gains, share-the-pains hypothesis, if they have genuine health concerns. D. capture hypothesis, if their goal is to protect their population from potential health hazards.
C. share-the-gains, share-the-pains hypothesis, if they have genuine health concerns.
Market solutions to the lemons problem entail A. product warranties. B. industry standards. C. product certification. D. All of the above.
D. All of the above.
The effectiveness of regulation is mitigated when A. firms engage in creative response. B. individuals reduce their vigilance toward safety when additional safety regulations are implemented. C. individuals generate a "feedback effect." D. All of the above.
D. All of the above.
It is estimated that the total annual social cost associated with satisfying federal, state, and municipal regulations in the United States A. is almost $300 billion. B. is roughly $700 billion. C. averages $1 trillion. D. exceeds $1.75 trillion.
D. exceeds $1.75 trillion.
The Sherman Act outlaws A. the existence of monopolies. B. price discrimination. C. mergers. D. monopolization.
D. monopolization.
In practice, regulators generally A. require firms to make losses. B. allow firms to do whatever they want. C. require firms to set price equal to marginal cost. D. require firms to set price equal to average cost.
D. require firms to set price equal to average cost.
The federal regulatory agency that has jurisdiction over labor markets is A. the Occupational Safety and Health Administration. B. the Securities and Exchange Commission. C. the Federal Trade Commission. D. the Equal Employment Opportunity Commission.
D. the Equal Employment Opportunity Commission.
The U.S. antitrust law which was the first to hold any person who attempts to monopolize trade or commerce criminally liable is A. the Clayton Act of 1914. B. the Federal Trade Commission Act of 1914. C. the Robinson-Patman Act of 1936. D. the Sherman Antitrust Act of 1890.
D. the Sherman Antitrust Act of 1890.
The possibility that asymmetric information can lead to a general reduction in product quality in an industry is known as A. the free-rider problem. B. caveat emptor. C. market failure. D. the lemons problem.
D. the lemons problem.
Protecting consumers from problems arising from asymmetric information is a rationale for A. allowing corporate mergers. B. government ownership of the means of production. C. the regulation of natural monopolies. D. the regulation of non-monopolistic industries.
D. the regulation of non-monopolistic industries.
Governments tend to regulate industries in which they think market _____________________ and _______________________ information problems are most severe.
Failures; assymetric
Which of the following is not an issue in enforcing antitrust laws? A. The laws are vague. B. Marginal cost pricing. C. Defining the relevant market. D. International competition.
Marginal cost pricing.
Regulation has benefits that are difficult to quantify in dollars. The costs of regulation include direct ________________________ expenditures on regulatory agencies and ______________________ explicit and implicit opportunity costs of complying.
government; firms
Antitrust authorities generally have not considered product __________________________ , or offering different versions of essentially the same product for sale at different prices, to be illegal price discrimination. U.S. authorities have, however, raised antitrust concerns about product _________________________ , which they view as a method of engaging in tie-in sales that require consumers to purchase one product in order to obtain another.
versioning; versioning
