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Cartels and price wars

1. A firm will only earn normal profit in the long run
a. if firms can freely enter or leave the market
b. if firms do not try to maximize profit
c. only if the industry is perfectly competitive
d. whenever products are not differentiated

2. Under which of the following market conditions is it most difficult to maintain a cartel agreement?
a. There are many firms in the industry and these firms have similar costs.
b. There are many firms in the industry and these firms have different costs.
c. There are few firms in the industry and these firms have similar costs.
d. There are few firms in the industry and these firms have different costs.

3. Which oligopoly model was developed to explain price wars in an industry?
a. natural oligopolies
b. cartels
c. price leadership by a dominant firm
d. game theory

4. Resource owners will supply additional units of a resource as long as doing so
a. decreases their opportunity cost
b. increases their income
c. increases their utility
d. decreases their income taxes

5. In the resource market, firms demand resources in order to
a. maximize profit
b. maximize total revenue
c. maximize marginal revenue
d. maximize utility

6. Derived demand refers to
a. demand curves derived from utility functions
b. an individual demand curve estimated from a market demand curve
c. a market demand curve estimated from individual demand curves
d. demand for a resource derived from the demand for the product produced by that resource

7. Economic rent is defined as
a. the opportunity cost of a resource
b. the payment to a resource in excess of its opportunity cost
c. opportunity cost
d. total earnings

8. If the wage is below the marginal revenue product, then a profit-maximizing firm will
a. employ more workers
b. employ fewer workers
c. see an increase in its demand for labor
d. see an increase in its supply of labor

9. Market work includes activities such as
a. practicing your golf game
b. studying for an economics exam
c. teaching a college economics course
d. picking up empty cans for the bottle deposit

10. Because leisure is a normal good, an increase in income
a. decreases the demand for leisure time and reduces the amount of time allocated to market work
b. decreases the demand for leisure time and increases the amount of time allocated to market work and/or nonmarket work
c. increases the demand for leisure time and reduces the amount of time allocated to market work and nonmarket work
d. increases the demand for leisure time and increases the amount of time allocated to market work and nonmarket work

11. Other things equal, the supply of labor will be greater to a job that
a. requires advanced education and training
b. requires most working hours be on weekends
c. requires hard physical labor
d. allows the employee greater discretion in the use of time

12. The source of power for a labor union is its ability to
a. increase the quantity supplied of labor
b. decrease the quantity supplied of labor
c. decrease the demand for capital
d. decrease the supply of labor

13. Because of discrimination, which of the following have systematically earned less than others of equal ability?
a. only African-Americans
b. only Hispanics
c. only African-Americans and Hispanics
d. African-Americans, Hispanics, and women

14. Government controls of price, output, entry of new firms, and quality of service in industries where monopoly appears desirable are known as
a. antitrust regulation
b. economic regulation
c. social regulation
d. antimerger regulation

15. 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
c. groups of consumers with special interests may be able to control a regulatory agency to their own benefit
c. foreign lobbyists may be able to control a regulatory agency to their own benefit

16. An example of 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. the seller offers a good for sale to an individual (or a limited group) on substantially better terms than is available to the general public

17. Because of the rise of global competition and free trade,
a. antitrust policy serves no purpose
b. antitrust policy may be less necessary than previously thought
c. U.S. industrial concentration poses more of a threat to consumers
d. U.S. markets are becoming less contestable

18. A good that is both rival and exclusive is called
a. a private good
b. a public good
c. a quasi-private good
d. an external good

19. If a voter expects to have little effect on government choices, that voter's behavior will reflect
a. rational ignorance
b. a cyclical majority
c. rent seeking
d. vote trading

20. Attempts by special-interest groups to gain favorable treatment from government are called
a. utility maximizing
b. profit seeking
c. rent seeking
d. profit maximizing

21. The term underground economy refers to
a. market activity not reported to the government
b. purely illegal activity
c. all ore mining
d. the subway system

22. In a free market, a firm's rate of output is determined
a. where marginal social cost equals marginal social benefit
b. where marginal private benefit equals marginal social benefit
c. where marginal social cost equals marginal private cost
d. where marginal private cost equals marginal private benefit

23. If producers cannot afford the fees for pollution rights,
a. they will pollute
b. they will buy pollution rights
c. they will sell pollution rights
d. they will have to find a cheaper way to deal with their pollution

24. In the U.S., people tend to discard items rather than repair them because
a. Americans are lazy
b. of the high opportunity cost of time
c. it is costly to use land for waste disposal
d. high wages in the waste disposal industry discourages repairs

25. Which of the following provides a positive externality?
a. smog
b. inoculating children against measles
c. hamburgers
d. litter

26. If firms expect greater demand for their products, invest in more capital and hire more labor,
a. there will likely be an increase in inflation and a rise in taxation
b. the business cycle is likely to be moving from peak to trough
c. their behavior may encourage the very prosperity that they expect
d. government will probably have to spend more and tax less to offset the economic impacts of these business decisions

Solution Preview

1. A firm will only earn normal profit in the long run
c. only if the industry is perfectly competitive

2. Under which of the following market conditions is it most difficult to maintain a cartel agreement?

b. There are many firms in the industry and these firms have different costs.

A cartel with many members is harder to police, and different cost structures result in different profit maximizing behavior.

3. Which oligopoly model was developed to explain price wars in an industry?
d. game theory

Only game theory describes how firms choose their prices in a price war. Price leadership involves one firm setting the price for the industry.

4. Resource owners will supply additional units of a resource as long as doing so
c. increases their utility

5. In the resource market, firms demand resources in order to
a. maximize profit

6. Derived demand refers to
d. demand for a resource derived from the demand for the product produced by that resource

7. Economic rent ...

Solution Summary

Multiple choice questions on a variety of topics such as oligopoly models, resource markets, and free trade.

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