Econ Chapter 7 Review

Before government approves a merger, what must the companies prove the merger would do? (A) Lower costs and consumer prices or lead to a better product. (B) Be beneficial by creating an artificial monopoly. (C) Be good for certain consumers but not others. (D) Actually raise the number of competitors in the market.

(A) Lower costs and consumer prices or lead to a better product.

Which of the following is not an example of barriers to entry? (A) In some counties, laws require retail stores to be closed on Sundays. (B) Cable companies must lay miles of underground cable before they can serve a single customer in a new market. (C) An entrepreneur who wants to own a clothing store must rent a building, hire workers, and buy clothing to sell. (D) A person who wishes to practice medicine is required to attend medical school, do an internship, and pass a state exam.

A. In some counties, laws require retail stores to be closed on Sundays

Why do companies practice price discrimination? (A) Price discrimination maximizes profits by charging different prices to different groups of consumers. (B) Price discrimination allows companies to defend an illegal monopoly against free market competition. (C) Price discrimination enables companies to charge all consumers the same price for a good or service. (D) Price discrimination provides individual producers with an advantage in perfectly competitive markets.

A. Price discrimination maximizes profits by charging different prices to different groups of consumers.

Why do companies practice price discrimination? (A) Price discrimination recognizes that groups of consumers are willing and able to pay different amounts for a good. (B) Price discrimination allows companies to defend an illegal monopoly against free market competition. (C) Price discrimination enables companies to charge all consumers the same price for a good or service. (D) Price discrimination provides individual producers with an advantage in perfectly competitive markets.

A. Price discrimination recognizes that groups of consumers are willing and able to pay different amounts for a good.

When the government deregulates a product or service, what happens to it? (A) Some government regulations over the industry are eliminated. (B) Government control over the industry is stopped. (C) The product or service is available to more people. (D) The product or service becomes cheaper.

A. Some government regulations over the industry are eliminated.

government policies that keep firms from controlling the price and supply of important goods

Antitrust Laws

In monopolistic competition, profits well in excess of costs are unlikely because _____. (A) The firm will not sell enough of the product and go out of business. (B) Consumers will choose a rival firm's product instead. (C) Consumers will boycott the product. (D) Nonprice competition only works for the short term.

B. Consumers will choose a rival firm's product instead.

In monopolistic competition, profits well in excess of costs are unlikely because _____. (A) Customers always return to the product that is least expensive, even if the quality of that product is much lower. (B) Established rivals and new firms would lure customers away with slightly different and/or cheaper products. (C) Excess output can be maintained only for short periods. (D) Nonprice competition only works for the short term.

B. Established rivals and new firms would lure customers away with slightly different and/or cheaper products.

Which of the following describes an oligopoly? (A) Eight to ten firms producing 90 percent of the output. (B) Four firms producing 70 to 80 percent of the output. (C) One firm producing 95 percent of the output. (D) Eight to ten firms producing 60 to 70 percent of the output.

B. Four firms producing 70 to 80 percent of the output.

Why does a perfectly competitive market require many participants as both buyers and sellers? (A) So that both buyer and seller have the same information. (B) In order to maintain quality over the goods. (C) So that no individual can control the price. (D) Because the merchandise must be uniform.

B. In order to maintain quality over the goods.

What did the government claim Microsoft did to illegally extend its control over the market? (A) It had used predatory pricing and required customers to buy other products. (B) It had used predatory pricing to drive competitors out of business. (C) It had used predatory pricing and mergers. (D) It had used predatory pricing and formed a cartel with other companies.

B. It had used predatory pricing to drive competitors out of business.

In a perfectly competitive market, individual consumers have _____. (A) Less influence than producers concerning prices. (B) No influence over determining price. (C) More influence than producers concerning prices. (D) More influence than consumers in other market structures.

B. No influence over determining price.

If two shops sell same merchandise but one offers a higher level of service, the service distinction is a form of _____. (A) Price Competition (B) Nonprice Competition (C) Choice Among Substitute Products (D) Local Competition

B. Nonprice Competition

Which of the following is a product that is considered a commodity? a. new automobiles b. low-grade gasoline c. wrapping paper d. apple candy

B. low-grade gasoline

Which of the following would be an oligopoly? (A) one firm producing 95% of the output (B) two or four firms producing 70% to 80% of the output (C) eight to ten firms producing 60% to 70% of the output (D) twelve to fourteen firms producing 90% of the output

B. two or four firms producing 70% to 80% of the output

any factor that makes it difficult for new firms to enter the market

Barrier to entry

Why are there actually relatively few markets in which there is perfect competition? (A) Buyers will not pay more for perfect competition. (B) High prices keep companies in the market longer than necessary. (C) Barriers keep companies from entering the market freely. (D) Lack of demand keeps buyers from the market.

C. Barriers keep companies from entering the market freely.

Patents are a form of monopoly that society allows because they _____. (A) Set up a situation in which only a few manufacturers can control an industry. (B) Give companies the right to decide who will be allowed to use their products. (C) Encourage firms to research and develop new products that benefit society as a whole. (D) Maintain an orderly way for companies to make a lot of money.

C. Encourage firms to research and develop new products that benefit society as a whole.

A major characteristic of monopolistic competition is that prices will be _____. (A) Unrelated to the type of competition. (B) Higher than in a true monopoly. (C) Higher than in perfect competition. (D) Lower than in perfect competition.

C. Higher than in perfect competition.

Which is the main difference between perfect competition and monopolistic competition? (A) In perfect competition, the prices are set by the government. (B) In monopolistic competition, there are fewer sellers and more buyers. (C) In monopolistic competition, sellers can profit from the differences between their products and other products. (D) In perfect competition, the buyer is free to buy from any seller he or she chooses.

C. In monopolistic competition, sellers can profit from the differences between their products and other products.

If a firm enjoys economies of scale, _____. (A) Its average total cost will increase as production increases. (B) Its total costs will decrease as production increases. (C) Its average total cost will decrease as production increases. (D) Its marginal revenue will increase as production increases.

C. Its average total cost will decrease as production increases.

If two restaurants sell many of the same food items but one offers a higher level of service, the service distinction is a form of _____. (A) Local competition (B) Choice among substitute products (C) Nonprice competition (D) Price fixing

C. Nonprice competition

Why does the government sometimes give monopoly power to a company by issuing a patent? (A) The government does not want competition for the product. (B) The company pays the government for the patent. (C) The company can then profit from their research without competition. (D) The company makes a product better than anyone else's.

C. The company can then profit from their research without competition.

Why does the government sometimes give monopoly power to a company by issuing a patent? (A) The government does not want competition for the product. (B) The company pays the government for the patent. (C) The government wants to encourage the company to develop products that benefit society. (D) The company produces a superior product for the government to use.

C. The government wants to encourage the company to develop products that benefit society.

What happens to an industry when the government deregulates it? (A) The industry's products or services become available to more people. (B) The industry's products or services become cheaper. (C) The industry gains more control over its decisions. (D) The industry has total control over all its decisions.

C. The industry gains more control over its decisions.

The controller of a monopoly sets the price of goods by charging _____. (A) As much as possible, regardless of the amount sold. (B) Less than the company would charge if it did not have a monopoly. (C) The price at which the profit is maximized. (D) Only a small amount over cost.

C. The price at which the profit is maximized.

Cartels are difficult to operate for which of the following reasons? (A) They are illegal worldwide. (B) Firms in a cartel are likely to lose money. (C) They work only if members keep to their agreed output.. (D) The products are perfectly competitive.

C. They work only if members keep to their agreed output..

a formal organization of producers that agree to coordinate prices and production

Cartel

an agreement among member of an oligopoly to illegally set prices and production levels

Collusion

a product that is considered the same regardless of who makes or sells it

Commodity

Why is a discounted airline fare a price discrimination that can be offered? (A) Because people who fly on business want the price discounts but do not qualify. (B) Because senior citizens qualify for discounts on certain types of flights but not on others. (C) Because people do not necessarily want to go where the discounts will allow them to go. (D) Because vacationers are willing to put up with the restrictions that the airlines impose.

D. Because vacationers are willing to put up with the restrictions that the airlines impose.

How does a perfect market influence output? (A) Different firms each strive to make more goods and capture more of the market. (B) Different firms make different amounts of goods, but some make a profit and others do not. (C) Each firm makes its output as large as possible even though some goods are not sold. (D) Each firm adjusts its output so that its costs, including profit, are covered.

D. Each firm adjusts its output so that its costs, including profit, are covered.

What is the relationship between start-up costs and a competitive market? (A) There is no consistent relationship between start-up costs and the competitiveness of a market. (B) Low start-up costs are likely to make a market less competitive. (C) Markets with high start-up costs are more likely to be perfectly competitive. (D) Markets with high start-up costs are less likely to be perfectly competitive.

D. Markets with high start-up costs are less likely to be perfectly competitive.

How much control over price do companies in a perfectly competitive market have? (A) Total control (B) Very little (C) Some (D) None

D. None

How can inventions such as cellular phones affect the government's antitrust policies? (A) The technology causes the need for stricter regulation than before. (B) Government rules can allow higher charges than competition. (C) People using the technology do not want antitrust regulations. (D) They can mean that the need for regulation no longer exists.

D. They can mean that the need for regulation no longer exists.

The government claimed that, to illegally extend its control over the market, Microsoft had used (A) predatory pricing and mergers (B) predatory pricing and buying out competitors (C) predatory pricing and forming a cartel (D) predatory pricing and requiring customers to buy other products

D. predatory pricing and requiring customers to buy other products

the government no longer decides each company's place in the market

Deregulation

adding a "secret ingredient" to a product to distinguish it from others

Differentiation

a producer's average cost drops as production rises

Economies of Scale

a single seller has the rights to sell goods in an exclusive market

Franchise

a market with barriers to entry

Imperfect Competition

a company joins another company or companies to form a single firm

Merger

many companies in an open market selling similar products

Monopolistic Competition

a single seller in a market

Monopoly

an industry that runs best when a single company produces a good or service

Natural Monopoly

a market structure dominated by a few large, profitable firms

Oligopoly

a company has exclusive rights to sell a new good or service for a specific time period

Patent

an illegal grouping of companies that discourages competition

Trust

What did the federal government accomplish with the Sherman Antitrust Act? a. repeal of regulations that controlled the airline and trucking industries b. registration of cartels with the Department of Justice's Antitrust Division c. permission for John D. Rockefeller to form the Standard Oil Trust d. power to prevent monopolies and mergers that interfere with trade between states

d. power to prevent monopolies and mergers that interfere with trade between states

a market with many firms, identical products, and free entry and exit

Perfect Competition

setting the market price below cost for the short term to drive competitors out of business

Predatory Pricing

government set maximum or minimum prices

Price Controls

consumers are divided into groups and each is charged differently

Price Discrimination

an agreement among firms to sell at the same or very similar prices

Price Fixing

expense a new business must pay before the first product reaches the customer

Start-Up Costs

specialized training needed to start certain businesses

Technological barrier

How does a perfect market influence output? a. Each firm adjusts its output so that its costs, including profit, are covered. b. Each firm makes its output as large as possible even though some goods are not sold. c. Different firms make different amounts of goods, but only some make a profit. d. Different firms each strive to make more goods and capture more of the market.

a. Each firm adjusts its output so that its costs, including profit, are covered.

Why is perfect competition considered the simplest market structure? a. The firms produce the same product for the same price. b. The firms' products are regulated by the government. c. The firms produce the same product at different prices. d. The firms are free from any government regulation.

a. The firms produce the same product for the same price.

How does the market price of a good in a monopoly market compare with the market price of the same good in a perfectly competitive market? a. The price is higher. b. The price is lower. c. The prices cannot be compared. d. The prices are the same.

a. The price is higher.

What kind of market runs most efficiently when one large firm supplies all of the output? a. a natural monopoly b. a network c. a perfect competition d. an imperfect competition

a. a natural monopoly

One way that firms in a monopolistic competition engage in nonprice competition is through a. advertising. b. production. c. variable costs. d. fixed costs.

a. advertising.

Imperfect competition is usually caused by a. free markets. b. barriers to entry. c. new commodities. d. identical products.

b. barriers to entry.

In a perfectly competitive market, output a. maximizes profits for the company owners. b. is just enough to cover opportunity costs. c. exceeds customer demands for the supply. d. reflects the trends of the stock market.

b. is just enough to cover opportunity costs.

What is one example of a monopoly that the U.S. government generally permits? a. telephone conglomerates b. professional sports leagues c. utilities suppliers d. pharmaceutical groups

b. professional sports leagues

A group of customers who can benefit from price discrimination in the travel industry is a. anyone living in rural areas. b. senior citizens. c. users of ebay. d. people in poor health.

b. senior citizens.

What happens when a company gains market power? a. It must invest its profits in future goods. b. It decreases its share of profits in the industry. c. It has the ability to set prices and output for the industry. d. It makes very good products that benefit society.

c. It has the ability to set prices and output for the industry.

Why are firms in monopolistic competition the only type shown in the table that offer some variety of goods? a. They profit from economies of scale. b. They profit from market domination. c. They profit from product differentiation. d. They profit from price discrimination

c. They profit from product differentiation.

A government's purpose in giving an antitrust exemption to sports leagues is to a. increase the league owners' profits. b. prevent other leagues from financing competing sports. c. allow leagues to keep team play stable. d. prevent athletes from starting new teams.

c. allow leagues to keep team play stable.

The U.S. government's deregulation of the airline industry caused prices to decline in many places because a. deregulation made flying more expensive. b. some airports were dominated by one airline. c. competition lowered prices. d. deregulation caused demand for air travel to go down

c. competition lowered prices.

Ran Fast Car Company is opening a new factory. Its start-up costs will include a. transportation costs to deliver cars. b. advertising costs to sell cars. c. equipment to run the factory. d. salaries to assembly line employees.

c. equipment to run the factory.

A real-life example of nearly perfect competition is a a. computer monopoly. b. oil and gas cartel. c. farmers' market. d. public school system.

c. farmers' market.