Econ Ch 4 study guide

Which one of these statements is false A) Most of the largest U.S. corporate mergers and acquisitions have occurred since 1995 B) the U.S. government has not stopped any mergers from occurring C) there have been several large banking mergers in recent years D) virtually all large mergers have transaction values of more than $100 billion

B) the U.S. government has not stopped any mergers from occurring

The acquisitions of Time by Warner and ABC by Walt Disney were examples of _________ mergers A) horizontal B) vertical C) conglomerate

B) vertical

In recent years, the government decided to drop the _________ case A) U.S. Steel B) AT&T C) Xerox D) IBM

C) Xerox

The high-water mark of antitrust enforcement was marked by the ____________ case A) Alcoa B) U.S. Steel C) Du Pont D) IBM

A) Alcoa

The first trustbusters were Presidents A) Teddy Roosevelt and William Howard Taft B) Franklin Roosevelt and Harry Truman C) Dwight D. Eisenhower and John Kennedy D) Jimmy Carter and Ronald Reagan

A) Teddy Roosevelt and William Howard Taft

Since the early 1980's the size of companies acquired in mergers has been ____ A) getting smaller B) staying about the same C) getting larger

A) getting smaller

When 2 firms in the same industry form one larger company, this is a __________ merger A) horizontal B) vertical C) conglomerate D) diversifying

A) horizontal

In general, the deregulation of the airlines and interstate trucking has led to A) lower costs and lower prices B) higher costs and higher prices C) higher costs and lower prices D) lower costs and higher prices

A) lower costs and lower prices

Deregulation of the trucking industry resulted in A) many more firms and lower prices B) many more firms and higher prices C) fewer firms and lower prices D) fewer firms and higher prices

A) many more firms and lower prices

The most important job of the Federal Trade Commission today is to A) prevent false and deceptive advertising B) breakup unlawful trusts C) issue cease-and-desist orders when anticompetitive business practices occur D) promote commerce with foreign nations

A) prevent false and deceptive advertising

In April of 2000 Judge Thomas Penfield Jackson found Microsoft guilty of each of the following except that it A) used its marketing contracts with other companies to deprive its rival Netscape of the ability to distribute its Web browser B) tied its internet explorer web browser to the windows operating system as part of a larger campaign to quash innovation C) used anticompetitive means to maintain a monopoly for its PC operating system software D) attempted to monopolize the Web browser software market, making a deliberate and purposeful choice to quell incipient competition

A) used its marketing contracts with other companies to deprive its rival Netscape of the ability to distribute its Web browser

In 1911 the Supreme Court broke up the __________________ ____________ trust into three component parts 1) 2) 3)

American Tobacco; 1) the american tobacco company 2) ligget and myers 3) P. Lorillad

Antitrust today could best be summarized up by the A) 90% rule B) 60% rule C) rule of reason D) one-year rule

B) 60% rule

Labor unions became exempt from antitrust enforcement under the _______ Act A) Sherman B) Clayton C) FTC

B) Clayton

The trusts won only the ____ case A) AT&T B) U.S. Steel C) American Tobacco D) Standard Oil

B) U.S. Steel

In 1911 the Supreme Court decided to A) allow the trusts to keep functioning as they had in the past B) breakup the trusts C) let the trusts off with small fines D) put the leaders of trusts in jail

B) breakup the trusts

The Supreme Court's rule of reason was applied A) from the time of the civil war B) from 1911 to 1945 C) after 1945 D) after 1970

B) from 1911 to 1945

Until the Alcoa case, the Supreme court generally held that ____________ A) bigness was all right as long as the company wasn't bad B) bigness was all right under any circumstances C) a company could do as it pleased as long as it wasn't big

C) a company could do as it pleased as long as it wasn't big

Which one of the industries listed below has had the largest mergers during the last 5 years A) steel manufacturing B) automoblie production C) communications D) trucking

C) communications

The rule of reason today is A) outlawed B) partially in force C) completely irrelevant

C) completely irrelevant

ITT, Ling-Temco-Vought, General Electric, and Gulf & Western are all the products of _________ merger A) horizontal B) vertical C) conglomerate D) diversifying

C) conglomerate

In the 1950s and 1960s the predominant form of merger was the _______ merger A) horizontal B) vertical C) congolmerate D) diversifying

C) congolmerate

Since 1929 the percent of American manufactured output produced by the 200 largest industrial firms has A) decreased B) stayed about the same C) increased substantially D) doubled

C) increased substantially

outlawed price discrimination

Clayton antitrust act

A key passage of the ____________ act stated that "every contract, combination in the form of trust or otherwise, in restraint of commerce and among the several states, or with foreign nations, is hereby declared illegal." A) Clayton B) FTC C) U.S. Communications D) Sherman

D) Sherman

The merger between Exxon and Mobil was subject to antitrust regulation by ____________ A) the justice department only B) the European commission only C) both the justice department and the European commission D) neither the justice department nor the European commission

D) neither the justice department nor the European commission

The Clayton Antitrust Act prohibited each of the following except A) price discrimination B) interlocking stockholding C) interlocking directorates D) trusts

D) trusts

this agency will investigate discrimination

EEOC, equal employment opportunity commision

they exist to protect the environment

EPA, environmental protection agency

this forbade rebates and discounts on the sale of goods to large buyers unless the rebate and discount were available to all

Robinson-Patman act

They regulate wall street and other investments in the economy

SEC, security exchange commision

"Every person who shall monopolize, or conspire with any other person or persons to monopolize, any part of the trade or commerce of the several states, or with foreign nations, shall be guilty of a misdemeanor" was a key passage of the ___________________ ___________________ Act

Sherman Antitrust

it outlawed all contracts "in restraint of trade" to halt the growth of trusts and monopolies

Sherman Antitrust Act

The first case to be tried under the Sherman Act was the ____________________________________________ case; the companies were found __________ of ____________________ ___________

Standard oil and American Tobacco, guilty, behaving badly

In 1911 the Supreme Court broke up the _______________ ________ and the _____________________ ________________ ____________

Standard oil; american tobacco trusts

what is an externality

an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume.

collusion

an illegal agreement among firms to divide the market, set prices, or limit production

trust

an illegal grouping of companies that discourages competition, similar to a cartel

Barriers to entry

any factor that makes it difficult for a new firm to enter a market

What are the roles of government under Adam Smith's laissez faire philopsophy

basically nothing, let the economy run itself, protect businesses from foreign trade and protect private property

what was the antitrust legislation of the late 1800's trying to restrict

business' actions, their freedom to become unfair

In the late 19th century trusts were formed. They were __________________________; the largest trust was the _________________ __________

cartels that set price and allocated scales; Standard Oil

economies of scale

characteristics that cause a producer's average cost per unit to drop as production rises

a formal agreement to set prices or to otherwise behave in a cooperative manner

collusion

a situation in which the average cost of production falls as the firm gets larger

economies of scale

what are the 5 ways a market can fail

inadequate competition, inadequate information, inefficient distribution of resources, resource immobility, and any externalities

what was the purpose of the sherman antitrust act

it outlawed mergers and monopolies that limit trade between states

what was the purpose of the clayton antitrust act of 1914

it was passed to try and stop price discrimination, price fixing and other unfair business practices

antitrust laws

laws that encourage competition in the market place

What actions led to a modification of free enterprise

laws/regulation on monopolies, government regulation, public safety laws

what are the 4 consequences of decrease in competition in a market

leads to inefficient use of resources, more artificial shortages, business gain more market power, and resource immobility

differentiation

making a product different from other, similar products

what are the 5 major conditions that characterize perfectly competitive markets

many buyers and sellers identical products well-informed buyers and sellers easy market entry and exit buyers and sellers act independently

Name the 4 different types of monopolies

natural government technological geographical

the use of advertising, giveaways, or other promotional campaigns to convince buyers one product is better than another

nonprice competition

market structure in which a few very large sellers dominate the industry

oligopoly

which market structure is characterized by a large amount of interdependence

oligopoly

What is the advantage to the public of truth-in-advertising laws

people know the truth about the products/services and cannot be fooled

Market situation in which a large number of well-informed and independent buyers and sellers exchange identical products

perfect competition

the practice of charging customers different prices for the same product

price discrimination

this supports competition by providing buyers and sellers with information

public disclosure

"bigness was no offense" was the underpinning of the _______ _____ __________

rule of reason

predatory pricing

selling a product below cost for a short period of time to drive competitors out of the market

market power

the ability of a company to control prices and total market output

price discrimination

the division of consumers into groups based on how much they will pay for a good

start-up costs

the expenses a new business must pay before it can begin to produce and sell goods

What characteristics make the U.S. economy a "mixed free enterprise system."

the fact that we have multiple market structures, different business organizations, and different levels of government involvement/regulation in the economy/markets

define market structure

the organization and characteristics of the market itself, characteristics: competition in market, market power and levels of price

deregulation

the removal of governmental controls over a market

what is required for a monopolistically competitive firm to have some control over its prices

to sell similar but not identical products, product differentiation

What is the purpose of public disclosure

to support competition by providing information to buyers and sellers

this agency deals with airlines and flying

FAA, federal aviation administration

they regulate radio and broadcast tv

FCC, federal communications commission

what is one example of how local or state government allows and regulates a monopoly

FTC

this regulates unfair methods of competition

FTC, federal trade commission

this law created the agency that regulates unfair methods of competition

Federal trade commission act

they regulate labor unions

NLFB, national labor relations board

If you are injured while working and your employer is not interested in paying for your medical bills, you would seek assistance from this agency

OHSA, Occupational Health and Safety organization

franchise

a contract that gives a single firm the right to sell its goods within an exclusive market

cartel

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

a monopoly based on the absence of other sellers in a certain location is called

a geographical monopoly

license

a government-issued right to operate a business

patent

a license that gives the inventor of a new product the exclusive right to sell it for a specific period of time

monopoly

a market in which a single seller dominates

oligopoly

a market structure in which a few large firms dominate a market

Pure Competition

a market structure in which a large number of firms all produce the same product and no single seller controls supply or prices; also called perfect competition

monopolistic competition

a market structure in which many companies sell products that are similar but not identical

imperfect competition

a market structure that fails to meet the conditions of pure competition

natural monopoly

a market that runs most efficiently when one large firm provides all of the output

government monopoly

a monopoly created by the government

Commodity

a product, such as petroleum or milk, that is considered the same no matter who produces or sells it

price war

a series of competitive price cuts that lowers the market price below the cost of production

what is a market failure

a situation in which the free market operating on its own does not distribute resources effeciently

non-price competition

a way to attract customers through style, service, or location, rather than a lower price

in which market structure would market profit maximization be determined by MR=MC

all of them

price fixing

an agreement among firms to charge one price for the same good

A __________________ makes the sale of one product conditional on the purchase of another product or products from the same seller; ___________ stipulate that a retailer must not carry some rival firms' product line

tying, terms/conditions

What does resource immobility mean and why can it cause a market failure

when land, labor, capitol entrepreneural activity do not move to markets where returns are the highest. can lead to inefficient use of resources.

under what conditions are monopolies acceptable

when the monopoly actually benefits the economy because it has the lowest costs of producing and people constantly/consistently want that product

merger

when two or more companies join to form a single firm