BA 4309 – Regulation of Business, Spring 2003– Test 1.                        Peter Lewin.

 

Please read the following carefully:

 

Multiple Choice – 25 questions.  Please use a 50 question scantron (882-ES) 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.

 

Solution and grade distribution at end:

 

  1. In which of the following cases is the burden of proof on the pharmaceutical drug manufacturer to prove that the drug is safe?

a.        when a Type I error is the error of approving an unsafe drug

b.       when a Type II error is the error of approving an unsafe drug

c.        when a Type I error is the error of not approving a safe drug

d.       when a Type II error is the error of not approving a safe drug

e.        a and d of the above

 

  1. In which of the following cases is the burden of proof on the state to prove the guilt of an individual?

a.        when a Type I error is the error of convicting an innocent person

b.       when a Type II error is the error of convicting an innocent person

c.        when a Type I error is the error of not convicting a guilty person

d.       when a Type II error is the error of not convicting a guilty person

e.        a and d of the above

 

  1. Cigarette smuggling occurs because

a.        cigarettes are costly to produce

b.       cigarettes are taxed

c.        tax rates differ between states

d.       all of the above

e.        a and b of the above

 

  1. Which of the following is an examples of a regulatory policy with consequences the opposite of its stated purpose?

a.        the setting of a minimum wage above the market wage

b.       the setting of a maximum rent below the market rent

c.        the use of funds to redeem slaves in the Sudan

d.       a and b of the above

e.        all of the above

 

  1. Which of the following is a true statement?

a.        the mandating of the installation of air bags in automobiles produced exactly the results it intended

b.       the mandating of the installation of air bags in automobiles cost less than was expected

c.        the mandating of the installation of air bags in automobiles produced results the opposite of what was intended

d.       the mandating of the installation of air bags in automobiles produced both intended and unintended results

e.        none of the above is true

 

  1. The more is spent on airline safety

a.        the greater the marginal cost

b.       the lower the marginal cost

c.        the greater the marginal benefit

d.       the lower the marginal benefit

e.        a and d of the above

 

  1. According to Milton Friedman

a.        political freedom is more important than economic freedom

b.       true political freedom is invariably accompanied by economic freedom

c.        economic freedom frequently leads to political freedom

d.       economic freedom is impossible without political freedom

e.        b and c of the above

 

  1. Freedom as understood by the classical English philosophers implies

a.        freedom from physical coercion

b.       freedom from hunger

c.        free education

d.       free healthcare

e.        all of the above

 

  1. According to Friedman a legitimate role for government is

a.        to act as umpire

b.       to act as rule maker within constitutional limits

c.        to ensure a minimum standard of living

d.       all of the above

e.        a and b of the above

 

  1. Trade unions logically support the imposition of a minimum wage because

a.        they care about their fellow workers

b.       they believe it guarantees every worker a decent wage

c.        it protects them from competition from non-union workers

d.       it increases employment

e.        a and b of the above

 

  1. Which of the following is a true statement?

a.        the attacks of September 11 were not as costly as might appear because they had the unintended social benefit of increasing employment in the security and building industry

b.       by any estimate the loss of physical capital from the September 11 attacks was greater than the loss of human capital

c.        by any estimate the loss of human capital from the September 11 attacks was greater than the loss of physical capital

d.       the damage caused by the September 11 attacks is greater than the damage caused by any other human catastrophe

e.        b and d of the above

 

  1. According to our text, the prohibition of drugs has caused

a.        the use of less potent varieties

b.       the use of more potent varieties

c.        the uplifting of social morality

d.       a decrease in the price of drugs

e.        c and d of the above

 

  1. Decriminalization of drugs and prostitution would cause

a.        the price of each to rise

b.       the price of each to fall

c.        the price of drugs to rise

d.       the price of drugs to fall

e.        it is impossible to say

 

  1. Decriminalization of drugs and prostitution would cause

a.        more of both to be consumed

b.       less of both to be consumed

c.        more drugs and less prostitution to be consumed

d.       more prostitution and less drugs to be consumes

e.        it is impossible to say

 

  1. During the drought in California in the late 1980’s and early 1990’s, farmers were able to purchase subsidized water to irrigate their crops, even though many homeowners had to pay large fines if they watered their lawns. Which of the following do you think is the best explanation for this discriminatory treatment?

a.        the farmers needed the water more

b.       the farmers as a group have more political power than the city homeowners

c.        politicians care more about consumers of food than about homeowners

d.       homeowners supported this policy

e.        politicians are stupid

 

  1. Which of the following are not subject to the laws of supply and demand?

a.        water

b.       health care

c.        education

d.       all of the above

e.        none of the above – the laws supply and demand apply to anything that is scarce

 

  1. Why are cigarettes attractive targets for taxation?

a.        because the demand for them is inelastic over the relevant price range

b.       because the demand for them is elastic over the relevant price range

c.        because tobacco farmers have no political influence

d.       because politicians are trying to completely eliminate smoking

e.        c and d of the above

 

  1. Which of the following is a plausible outcome of rent control?

a.        a shortage of rent controlled housing

b.       the decay of rent controlled housing

c.        the provision of decent housing at a low price to all who need it

d.       landlords who have found religion

e.        a and b of the above

 

  1. The prohibition of abortion would most likely result in which of the following?

a.        the elimination of all abortions

b.       the elimination of all dangerous abortions

c.        the splitting of the abortion market into a high price safe one and a low price dangerous one

d.       a decline in the price of all abortions

e.        all of the above

 

  1. Which of the following plausibly affects the cost of crime?

a.        the probability of being apprehended when committing a crime

b.       the probability of being charged once apprehended

c.        the probability of being convicted once charged

d.       the probability of being incarcerated once convicted

e.        all of the above individually and together affect the cost of crime

 

21.     The problem of deciding how much air safety is enough is complicated by

a.        the difficulty of knowing how much additional safety is achieved from any action

b.       the difficulty of knowing how much additional safety costs

c.        the difficulty of knowing how much consumers value each additional increment of safety

d.       all of the above

 

  1. Every regulatory policy faces

a.        the problem of ensuring the right incentives

b.       the problem of acquiring the right knowledge

c.        both of the above

 

  1. Which of the following is the correct cost concept to use in policy evaluation?

a.        historical cost

b.       accounting cost

c.        opportunity cost

d.       lifetime cost

e.        none of the above

 

  1. A completely inelastic demand curve over all possible prices is impossible

a.        because people are always rational

b.       because there are substitutes for everything

c.        because life is short

d.       because budgets are inevitably limited

e.        because supply curves are always horizontal

 

25.     Victimless crimes are distinguished by the fact that

a.        the victims all die

b.       the victims have no incentive to reveal the crime

c.        the victims don’t know they are victims

d.       they are not really crimes

e.        they are moral crimes.

GRADE DISTRIBUTION:

 

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

 

23

A+

19

A

18

A-

17

B+

16

B

15

B-

14

C+

ELSE

C

 

Solution:

 

1.        e ( for section 501 a or d)

2.        e

3.        c

4.        e

5.        d

6.        e

7.        c

8.        a

9.        e

10.     c

11.     c

12.     b

13.     e

14.     a

15.     b

16.     e

17.     a

18.     e

19.     c

20.     e

21.     d

22.     c (for section 501 c or d)

23.     c

24.     d

25.     b