BA4309 Regulation of Business, S[ring 2004 –test 3. Peter Lewin.

Please read the following carefully:

Multiple Choice – 50 questions. Please use a 50 question scantron with a pencil.

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.

Grade Distribution and Solution at end

1. Which of the following is/are true?

a. a decrease in Type I errors must imply an increase in Type II errors

b. a decrease in Type II errors must imply an increase in Type I errors

c. a decrease in Type I errors must imply an decrease in Type II errors

d. a decrease in Type I errors must imply an decrease in Type II errors

e. a and b of the above

2. which of the following is/are true?

a. the FDA could conduct itself so as to eliminate all errors

b. the FDA is not really a government agency

c. all Type I errors are logically the fault of the FDA

d. the FDA cannot avoid making some errors

e. c and d of the above

3. According to Milton Friedman’s argument in Capitalism and Freedom the proper role of government is
1. to guarantee the quality of products sold
2. protect domestic producers from foreign producers
3. protect American citizens from foreign aggression
4. protect consumers from too much competition

4. According to Milton Friedman’s argument in Capitalism and Freedom the best way to fight poverty is
1. to introduce a negative income tax
2. to raise minimum wages
3. to tax corporations and redistribute the money to the poor
4. to tax millionaires and redistribute the money to the poor

5. Which of the following losses from the 9/11 terrorist attacks was the largest?
1. the loss of physical capital and structures
2. the loss of insurance
3. the loss of human capital
4. the loss of materials

6. The main problem with airbags installed in cars is that
1. they cost too much
2. they sometimes kill people
3. they seldom inflate
4. they smell bad

7. Which of the following is the most costly to the U. S. each year?
1. automobile accidents
2. aircraft accidents
3. cruise ship accidents
4. military accidents

8. An aircraft accident is an example of a
1. Type I error
2. Type II error
3. stupid error
4. smart error

9. Which of the following is a good argument?
1. the U. S. has minimum wages and is wealthy. Poor countries do not have minimum wages. So it follows that poor countries should impose minimum wages in order to become wealthy
2. minimum wages cause unemployment (if they are believed enforced). The U. S. is wealthy in spite of its imposition of minimum wages.
3. Imposing and successfully enforcing minimum wages in a poor country will cause unemployment and poverty
4. all of the above are good arguments
5. a and c of the above are good arguments

10. Which of the following can happen as a result of the imposition of rent controls?
1. apartments get abandoned
2. rent controlled apartments become in short supply and the actual price of renting them rises
3. the supply of rent controlled houses rises
4. all of the above
5. a and b of the above

11. Which of the following is true of the drug war?
1. each year we spend less in the U. S. on the war on drugs
2. each year we spend more in the U. S. on the war on drugs
3. each year we get closer to winning this war
4. marijuana has been proven to be more harmful to your health than alcohol

12. Which of the following is true? The effort to redeem the slaves of the Sudan has
1. been an unqualified success
2. produced the effect of increasing the supply of slaves
3. decreased the supply of slaves
4. a and d of the above

13. According to the teaching of neoclassical economics a monopoly is
1. only the government
2. a single seller
3. not more than two sellers
4. impossible

14. The demand curve for water is
1. vertical
2. horizontal
3. downward sloping
4. upward sloping

15. Imagine that equally productive workers are composed of two-thirds men and one-third women. All the employers are men who prefer not to employ women at the same price as men. They will hire women only if they are willing to work for less. There is competition, and no regulation, in the labor market. Which of the following is an equilibrium situation?
1. women will not be able to work
2. both men and women will get jobs, but women will be paid less for the same work
3. only women will be employed
4. competition will ensure that men and women receive equal pay

16. Consider the previous question. Imagine that none of the employers are discriminators but that the men workers prefer not to work with women workers and will not do so unless the women get paid less than them.. There is competition, and no regulation, in the labor market. Which of the following is an equilibrium situation?
1. women will not be able to work
2. both men and women will get jobs, but women will be paid less for the same work
3. only women will be employed
4. competition will ensure that men and women receive equal pay, but they will work in segregated (men only and women only) firms

17. What accounts for the problems that beset the water industry in California?
1. high levels of taxation on water
2. low levels of taxation on water
3. subsidies to water consumers in the city
4. subsidies to water consumers on the farms

18. In order for a monopoly cartel like OPEC to be successful it must
1. control a large share of the market and not be challenged by new suppliers
2. be able to prevent cheating by its members
3. charge the highest price on the demand curve
4. all of the above
5. a and b of the above

19. When a technological improvement occurs that reduces the costs of production of a given producer, which of the following happens?
1. the AC curve shifts down
2. the MC curve shifts down
3. both of the above happen
4. none of the above happens

20. Which of the following is true?
1. both a monopolist and a perfect competitor will try and equate MC with MR
2. a perfect competitor cannot equate MC with MR
3. a monopolist will make MR higher than MC
4. b and c of the above

21. According to Armentano which of the following is a monopoly>
1. Microsoft
2. AT&T
3. the government
4. UTD

22. The most obvious evidence of a health care crises is
1. falling incomes of physicians
2. the rising cost of health care
3. the decline in health care quality
4. insufficient health care regulation
23. Assume both the supply and demand for health care is rising. If the price of health care is rising it must mean that
1. the demand is rising faster than the supply
2. the supply is rising faster than the demand
3. the insurance companies are to blame
4. the drug companies are to blame

24. The basic cause of cigarette smuggling across state lines is
1. the fact that different states have different tax rates on cigarettes
2. cigarettes are more addictive in some states than in others
3. cigarettes are banned in some states
4. incomes vary across states

25. Choosing between Type I and Type II errors illustrates which of the following concepts?
1. marginal cost pricing
2. human capital analysis
3. trade offs
4. statistical law

26. The traditional neoclassical approach to the regulation of monopolies leads one to recommend that prices ought to be as close as possible to
1. full cost
2. marginal cost
3. average cost
4. average revenue

27. When regulating a natural monopoly which of the following is unreasonable?
1. requiring price to equal marginal cost
2. requiring price to equal average cost
3. requiring price to equal average revenue
4. requiring total cost to be less than total revenue

28. Public schooling in America
1. dates from the time of the revolutionary war
2. is only about 150 years old
3. is over 300 years old
4. is only 50 years old

29. The major historical trend in public schooling in the U. S. has been for
1. the number of school districts to decline from about 150,000 to about 10,000
2. the number of school districts to increase from about 10,000 to about 150,000
3. the number of school districts to remain the same
4. the number of school districts to rise and fall over time sequentially

30. Milton Friedman has recommended the introduction of competition into public schooling through the use of
1. charter schools
2. private donation scholarships
3. universal vouchers
4. tax credits

31. According to advocates of introducing competition into publicly subsidized education, which of the following is likely to benefit the most from such competition
1. those family with higher incomes
2. those families with lower incomes
3. the smart kids
4. the dumb kids

32. The fundamental problem behind the recent electricity blackouts in California was the use of
1. price controls to fix prices for consumers
2. competition to deregulate the industry
3. the governor’s desire to raise consumer prices
4. the fact that the suppliers were greedy

33. When different people are charged different prices this is known as
1. monopoly behavior
2. price discrimination
3. price differentiation
4. none of the above

34. When the elasticity of two separate markets is different a monopoly seller should
1. charge a lower price in the market where the elasticity of demand is higher
2. charge a lower price in the market where the elasticity of demand is lower
3. charge the same price in both markets
4. vary the price over time between the markets

35. The abandonment of the inner city has been associated with the phenomenon of
1. urban renewal
2. urban crawl
3. urban sprawl
4. urban cowboys

36. Which of the following policies is best suggested as a way of coping with the rising amount of trash being generated
1. placing strict limits on how much garbage one may create
2. charging for garbage collection by volume collected
3. paying people to recycle
4. outlawing garbage

37. The logic of law enforcement requires which of the following in order to achieve the greatest reduction in crime?
1. special emphasis on finding a big enough penalty for criminal action
2. special emphasis on convicting more of those who are apprehended
3. special emphasis on apprehending more of those who commit crimes
4. an approach that carefully balances the probabilities of identification, apprehension, indictment, conviction and incarceration.

38. The law providing the option of legal abortion has
1. increased the number of abortions performed
2. made abortion safer
3. convinced most of those who were opposed to it that it is the right thing
4. all of the above
5. a and b of the above

39. Which of the following is the most important cause of the impending crises in social security?
1. the current budget deficit
2. the large size of the baby-boom generation
3. the current social security surplus
4. the high cost of retirement

40. Which of the following solutions to the social security crises has the best long run chance of being a permanent solution?
1. increasing the social security tax
2. decreasing social security benefits
3. privatizing the system so as to allow workers to invest in private growth investments
4. relying on large increases in labor productivity
5. encouraging the production of more babies

41. When the cost of negotiating and transacting are small and the parties affected are equally wealthy, in a dispute over property rights the resulting pattern of resource usage will not depend on who is awarded the rights. This proposition is known as
1. the Coase theorem
2. the property rights assertion
3. the law of markets
4. the corollary of supply and demand

42. The long term effect of high minimum wages that are well enforced will be to
1. encourage immigration
2. discourage immigration
3. increase employment
4. a and c of the above

43. Which of the following provide illustrations of the Coase theorem?
1. the upstream-downstream problem
2. the corn-farmer cattle-farmer problem
3. the laundry-factory problem
4. all of the above

44. All environmental “problems” are essentially about which of the following?
1. how selfish we all are
2. who should decide how resources ought to be used
3. weather those who really understand the value of resources are taken seriously
4. whether we care about animals or not

45. Which of the following approaches to the saving of endangered species is likely to save the most species?
1. establishing property rights in attractive habitats
2. doubling the size of the EPA and other relevant agencies
3. doubling the list of species on the endangered list
4. making every home and every business liable for identifying and saving the endangered animals they encounter

46. Which of the following assumptions is necessary to justify an aggressive policy of emissions control in the interests of solving the “problem” of global warming?
1. global warming exists
2. global warming is a result (in whole or in part) of emissions by human beings
3. reducing emissions by human beings will make a difference to the level of warming
4. all of the above

47. In which of the following situations would there be no environmental problems as we know them?
1. all people are smart and generous
2. all valuable resources (resources that had value to anyone) can be clearly owned – there are no difficulties in defining and enforcing property rights
3. all resources are publicly owned, so that government can prevent anyone abusing them
4. the right people are put in charge

48. If the right to drill for oil in Alaska were given to an organization devoted to preserving the Alaskan wilderness, which of the following will most likely occur?
1. no drilling or oil production will take place there
2. all of the precious wild life will definitely be saved no matter what the cost
3. more people would visit Alaska
4. a deal between the environmentalist organization and those interested in oil exploration would take place if there was really reason to believe there were profitable oil reserves there

49. In which of the following can we not avoid using the government (at some level)
1. to save endangered species
2. to control automobile emissions
3. to control the excessive use of depleteable resources
4. to control the for the dangers of genetically engineered food products

50. Which of the following is a necessary precondition for the existence of free trade?
1. the rule of law establishing and effectively enforcing property rights
2. a belief in God
3. a belief in democracy
4. none of the above

GRADE DISTRIBUTION:

If you total score (all three tests) is

greater than or equal to: your grade is

90	A+
80	A
77	A-
75	B+
70	B
65	B-
63	C+
60	C
ELSE	C-

Solution:

1. e
2. d
3. c
4. a
5. c
6. b
7. a
8. a
9. e
10. e
11. b
12. b
13. b
14. c
15. b
16. d
17. d
18. e
19. c
20. a
21. c
22. b
23. a
24. a
25. c
26. b
27. a
28. b
29. a
30. c
31. b
32. a
33. b
34. a
35. c
36. b
37. d
38. e
39. b
40. c
41. a
42. b
43. d
44. b
45. a
46. d
47. b
48. d
49. b
50. a