BA 4309 – Regulation of Business, Spring 2004 – Test 1.                       Peter Lewin.

 

Please read the following carefully:

 

Multiple Choice – 25 questions.  Please use a 50 question scantron with a pencil.  Hand in only the scantron (you may keep this question paper). 

 

This is a closed book exam.  Cheating will result in a zero (among other possible sanctions).

 

Among the possibilities given in each question select the best alternative.

 

  1. In order to determine the share of any simple excise tax paid by the buyer and by the seller of the product being taxed, one must know

a.        the size of the tax

b.       the slope of the demand and supply curves to the left of the market price

c.        the point at which the tax is collected

d.       all of the above

e.        a and b of the above

 

  1. A simple excise tax on cigarettes is likely to be borne
    1. mostly by the consumers of cigarettes
    2. mostly by the producers of cigarettes
    3. equally by both
    4. by neither producers nor consumers

 

  1. A simple excise tax on luxury goods is likely to be borne
    1. mostly by the consumers of cigarettes
    2. mostly by the producers of cigarettes
    3. equally by both
    4. by neither producers nor consumers

 

  1. An expenditure tax is usually collected from the

a.        buyer, because it is the buyer who really pays the tax

b.       seller, because it is the seller who really pays the tax

c.        seller, because there are fewer seller than buyers and it is cheaper to collect it that way

d.       none of the above is relevant; it is collected from either

 

  1. The provision of a subsidy per unit of good produced will result in
    1. more of that good being produced
    2. less of that good being produced
    3. a social loss
    4. a social gain
    5. a and c of the above

 

  1. According to Milton Friedman’s Capitalism and Freedom which of the following is true?

a.        democracy is necessary for (economic) freedom

b.       (economic) freedom is necessary for democracy

c.        economic freedom and democracy always occur together

d.       democracy never leads to dictatorship

 

  1. Increasing the time taken by the FDA to decide whether a drug is safe or not will result in which of the following?

a.        a decrease in Type I errors

b.       an increase in Type I errors

c.        an increase in Type two errors

d.       a and b of the above

e.        b and c of the above

 

  1. In our current system of criminal justice, which of the following is a Type II error?
    1. acquitting a guilty person
    2. convicting a guilty person
    3. acquitting an innocent person
    4. convicting an innocent person

 

  1. The current “war on drugs” and best be described as a
    1. supply side policy
    2. demand side policy
    3. incomes policy
    4. all of the above

 

  1. The most obvious affect of this war on drugs to date has been which of the following?
    1. a reduction of the street price
    2. an increase in the street price
    3. the elimination of drug use
    4. an increase in drug use

 

  1. Which of the following is a true statement?
    1. there is a shortage of water in the world
    2. the amount of water used is greater than it would otherwise in the absence of water subsidies
    3. because water is so special it is not affected in the same way by supply and demand
    4. the demand for water is completely inelastic

 

  1. The amount of damage caused by the 9-11 terrorist attacks
    1. was a large percentage of our GDP
    2. was a very small percentage of our GDP
    3. has never been estimated
    4. was equal to half the GDP

 

  1. The largest costs associated with the 9-11 attacks was
    1. the cost of the physical damage done
    2. the cost of the airplanes
    3. the cost of the human capital lost
    4. the cost of materials lost

 

  1. Cigarette smuggling between states exists because
    1. the population of different states differ in their addiction to cigarettes
    2. the demand for cigarettes is inelastic
    3. different amounts of tax revenue are collected from each state
    4. the tax on cigarettes differs across states

 

  1. Which of the following statements is false?
    1. in the absence of mandatory regulation no cars would have had airbags installed
    2. the mandating of airbags resulted in unintended consequences
    3. the installation of an airbag in a car improves the chances of a passenger or a driver of surviving a crash
    4. the installation of an airbag adds to the cost of the car

 

  1. Which of the following statements is true?
    1. the marginal costs of airline safety do not increase as more is spent on safety
    2. the marginal cost of airline safety most probably exceeds its marginal benefits at current expenditure levels
    3. in the absence of close regulation the airlines would spend too little on safety
    4. the marginal benefits of airline safety do not fall as more is spent on safety

 

  1. If I tell you that there is a shortage of particular good which of the following can you tell me?
    1. there is a surplus
    2. there is a shortage
    3. regulation is needed
    4. a and c of the above

 

  1. If I tell you that there is a surplus of particular good which of the following can you tell me?
    1. there is a surplus
    2. there is a shortage
    3. regulation is needed
    4. a and c of the above

 

  1. Which of the following can we most plausibly claim will be a result of abolishing minimum wages?
    1. unemployment will increase
    2. more people will find low paying jobs
    3. poverty will increase
    4. b and c of the above

 

  1. Rent control if it is effective will benefit
    1. those most in need of housing
    2. the landlords
    3. real estate investors
    4. none of the above
  2. Which of the following is a defensible statement?
    1. If we are to conduct rational economic and social policy we cannot avoid the evaluation of lives lost from alternative policies
    2. Economic and social policy cannot use the evaluation of lives in its assessments because each life is priceless
    3. For purposes of economic policy a person who earns more is valued higher than a person who earns less
    4. a and c of the above

 

  1. Every regulator faces
    1. a knowledge problem
    2. an incentive problem
    3. a psychological problem
    4. a and b of the above

 

  1. One of the legitimate problems that a sensible water-use policy faces is
    1. that water is very important
    2. water is transparent
    3. water can be cold or hot
    4. it is sometimes difficult to establish enforceable property rights in water (because it flows from one place to another).

 

  1. Victimless crimes are distinguished by the fact that
    1. the victims all die
    2. the victims don’t know they are victims
    3. the victims have no incentive to reveal the crime
    4. they cost more

 

25.     an advantage of using the market rather than a regulatory institution to regulate activity is

a.        the market never results in anyone being cheated

b.       the market always results in cheaper products

c.        knowledge is dispersed throughout the economy and cannot be available all at once to regulators

    1. all of the above

 

 

GRADE DISTRIBUTION:

 

If you score is greater than or equal to:       your grade is

24

A+

20

A

19

A-

18

B+

17

B

16

B-

15

C+

14

C

ELSE

C-

 

Solution:


      1. e
      2. a
      3. b
      4. c
      5. e
      6. b
      7. error in the question had to throw it out
      8. a
      9. a
      10. b
      11. b
      12. b
      13. c
      14. d
      15. a
      16. b
      17. b (it should read the price is too low)
      18. a (it should read the price is too high)
      19. b
      20. d
      21. d
      22. d
      23. d
      24. c
      25. c