BA 4309 – Regulation of Business, Fall 20020 –test 3.                             Peter Lewin.

 

Please read the following carefully:

 

Multiple Choice – 50 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.

 

Solution and grade distribution at end.

 

  1. Which of the following systems of educational organization provides the most accountability to parents
    1. public schools
    2. charter schools
    3. schools able to accept educational vouchers
    4. there is no difference between any of the above in this regard

 

  1. According to its supporters, which of the following student population groups stands to benefit the most from universal school vouchers?
    1. rich students in the suburbs
    2. students in private schools
    3. low income students in the inner cities
    4. very bright students
    5. very dumb students

 

  1. In the chapter on discrimination in Friedman’s Capitalism and Freedom, which of the following arguments is made
    1. discrimination according to race or gender is endemic and needs to be countered by state action
    2. discrimination can best be tackled by prosecuting the discriminators
    3. affirmative action policies are justified
    4. the market system tends to punish discriminators who deny themselves the use of the productive labor of minorities
    5. a, b and c of the above

 

  1. Imagine the following situation: identically qualified and productive workers are divided equally into men and women (50% men and 50% women). All employers are men. Half of the employers are prejudiced against women and will not hire them unless they are paid less than men for the same work. The other half will employ and pay the best person for the job as they see it regardless of gender. Women are willing to work at wages less than men rather than not have a job. There is competition in the labor market. Under these circumstances which of the following will be the long term result?
    1. firms will be segregated into those employing only men or only women
    2. only firms employing men will survive
    3. only firms employing women will survive
    4. segregated and mixed firms may survive and men and women will be paid the same

 

  1. Assume the same circumstances as in the previous question. Imagine the imposition of an Equal Pay Law that says that you cannot employ women unless you pay them the same rate as men.  Under these circumstances, the number of women employed will
    1. increase
    2. decrease
    3. remain the same

 

  1. Which of the alternatives in the previous question would you choose if we assumed that there were NO non-discriminating employers?
    1. increase
    2. decrease
    3. remain the same

 

  1. Which of the following is true?
    1.  environmental problems are without exception the result of an inability and/or unwillingness to define and enforce property rights
    2. all environmental problems could be solved if the state had enough power
    3. the only way to solve environmental problems is by nationalizing resources
    4. the only way to solve environmental problems is to have the state decide how resources ought to be used
    5. c and d of the above

 

  1. According to the Coase Theorem
    1. one should always award pollution rights to the victim
    2. one should always award pollution rights to the poorest party
    3. the state should decide how resources should be used
    4. if transactions costs are very small the awarding of property rights will not affect the way in which resources are used
    5. resource usage is always dependent on who has the property rights

 

  1. Which of the following would cause the Coase theorem not to hold
    1. people are greedy
    2. people are evil
    3. organizational and transactions costs are very large
    4. all of the above
    5. none of the above

 

  1. The imposition of a tariff on the importation of automobiles in order to save American jobs in the automobile industry is likely to cost the nation
    1. much more than the value of the job saved
    2. much less than the value of the job saved
    3. an amount equal to the value of the job saved
    4. less as time goes by

 

  1. Imagine that Argentinean beef could be imported tariff free and sold at 50% of the current market price. Imagine that this means that consumers as a group could gain much more in savings from cheap beef than domestic producers as a group would lose.  Why don’t consumers simply pay the producers to have the tariff abolished?
    1. because producers can’t be bought, they are patriots
    2. because consumers don’t like beef
    3. because consumers are very numerous and would be extremely costly to organize for such a project
    4. a and b of the above

 

12.     If total revenue is unchanged when price falls, the elasticity of demand must be
a. less than one
b. equal to one
c. more than one
d. it is impossible to tell

 

 

 

 

 

13.     If average cost is constant, marginal cost

a.  must be falling

b. might be rising or falling

c.  must be equal to average cost

d. must be rising

 

14.     The imposition of a minimum wage above the (free) market wage will
a. increase unemployment
b. decrease unemployment
c. have no effect
d. first increase then decrease unemployment

 

15.     Under perfectly discriminating monopoly

a.        producer surplus is maximized

b.       the entire consumer surplus is extracted by the producer

c.        both of the above

d.       none of the above

 

16.     One explanation of industrial concentration could be

a.        economies of scale

b.       diseconomies of scale

c.        both of the above

d.       none of the above

 

17.     Falling marginal cost gives rise to

a.        economies of scale

b.       economies of scope

c.        barriers to entry

d.       none of the above

 

18.     Perfect competition is considered to be efficient, however it does not address the question of which market structure best

a.        encourages technological progress

b.       encourages the greatest degree of producer response to customer needs

c.        ensures that the product is produced and sold at the lowest possible cost under a given technology

d.       all of the above

19.     Predatory pricing refers to

a. pricing like an animal
b. pricing supplies above cost to drive out rivals
c. pricing products below cost to drive out rivals
d. pricing products above cost to drive out rivals
e. b and c.

20.     In deciding on the degree of health and accident related regulation, regulatory agencies tend to
a. overvalue costs and undervalue benefits
b. overvalue benefits and undervalue costs
c. overvalue both costs and benefits
d. undervalue both costs and benefits

21.     If the Food and Drug Administration accelerated the drug approval process for pharmaceutical drugs it would risk the occurrence of more
a. type I errors
b. type II errors
c. both of the above
d. none of the above

 

  1. Given the existence of scarcity, we must make choices. Economists express this idea by saying that we face ___________.
    1. trade-offs
    2. abundance
    3. challenges
    4. free lunches
    5. a brick wall

 

 

  1. A rule of thumb is that maximum benefits are obtained where
    1. marginal benefit minus marginal cost equals zero
    2. marginal benefit is zero
    3. marginal cost is at a minimum
    4. average cost is at a minimum
    5. b and d of the above

 

  1. The opportunity cost of any action is
    1. the expense incurred in doing it
    2. the benefit ratio
    3. the time and effort it requires
    4. the value of the best alternative sacrificed
    5. c or d of the above

 

  1. The pertinent question(s) is (are)
    1. whether safety is good or bad
    2. whether we want safety or not
    3. how much safety we want
    4. who should decide
    5. c and d of the above

 

  1. A Type II error occurs
    1. when the FDA approves an unsafe or ineffective drug
    2. when the FDA delays the introduction of a safe drug
    3. when the FDA approves a drug that is too expensive
    4. when people make bad choices

 

27.     The problem of deciding how much air safety is enough or how much pollution is optimal is complicated by

a.        incentive problems

b.       knowledge problems

c.        both of the above

d.       none of the above

 

28.     according to our text the decriminalizing of the use of certain substances would result in the use of ________ forms

a.        less potent

b.       more potent

c.        less attractive

d.       none of the above

 

29.     If the price of health care is too high, it must be because

a.        the demand is too high

b.       the supply is too low

c.        the quality is too good

d.       a and/or b of the above

e.        none of the above

 

30.     Victimless crimes are distinguished by the fact that

a.        the victims all die

b.       the victims don’t know they are victims

c.        the victims have no incentive to reveal the crime

d.       they cost more

 

31.     Controlling the supply of physicians by restrictive licensing and entry to medical schools clearly benefits

a.        the income of already practicing physicians

b.       patients

c.        drug companies

d.       insurance companies

e.        attorneys

 

32.     Third party payments for health insurance results in

a.        an increase in the demand for health care

b.       a decrease in the demand for health care

c.        an increase in the quality of health care

d.       b and c of the above

e.        none of the above

 

33.     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

d.       all of the above

 

  1. The most important threat to the financial viability of the Social Security system results from
    1. government inefficiency
    2. the fact that the average age of the population is rising
    3. the fact that younger people are more irresponsible
    4. the fact that women are working less
    5. all of the above

 

  1. Economic reasoning suggests that privatizing national parks is likely to __________ the chances of survival of endangered species found in the parks when the survival of the species are valued by a large number of wealthy people
    1. decrease
    2. increase
    3. make no difference to
    4. none of the above

 

  1. Advocates of free trade can confidently make the argument that
    1. everyone benefits from free trade
    2. free trade always leads to the most efficient methods of production
    3. both of the above
    4. none of the above

 

  1. Five friends go to a restaurant. They talk about how to divide the bill. Under which of the following possible arrangements would you expect the group to spend the most?
    1. everyone pays only for what he eats (plus the prorate share of tax and tip)
    2. they divide the bill in five equal shares
    3. they draw lots to see who pays for what
    4. it is impossible to tell

 

38.     Profits are maximized where
a. marginal revenue equals marginal costs
b. marginal revenue equals average costs
c. price equals marginal cost
d. all of the above

 

39.     Which of the following is likely to be the most stable monopoly?

a.        Microsoft

b.       The U.S. government

c.        General Electric

d.       IBM

 

40.     Which of the following years is the earliest one in which the Social Security system is most likely to run out of money?

a.        2003

b.       2004

c.        2010

d.       2020

 

41.     Through negotiations a trade union can obtain which for its members

a.        higher wages

b.       more work

c.        both of the above

d.       a or b but not both

 

42.     Which of the following groups is most likely to support minimum wages?

a.        employers

b.       unskilled workers

c.        trade unions

d.       bicycle riders

 

  1. According to Friedman, the best kind of government will be one that
    1. is limited in scope
    2. in which government power is dispersed
    3. that ensures that great works of art are produced
    4. all of the above
    5. a and b of the above

 

  1. Which of the following is NOT affected by the laws of supply and demand?
    1. water, because it is a necessity
    2. slaves in the Sudan
    3. oxygen
    4. insulin
    5. none of the above, all valuable things are subject to the laws of supply and demand.

 

45.     Smuggling of cigarettes across state lines occurs because

a.        of transportation costs

b.       different states have different state tax rates

c.        the people in some states are more addicted than in others

d.       some people are more religious than others

 

46.     Imposing a maximum rent on housing in a particular district that is below the market price

a.        is often necessary to ensure low cost housing

b.       is an example of intelligent, compassionate social policy

c.        will cause a shortage of housing in that district

d.       a and b of the above

 

47.     Free markets work because they

a.        economize on information

b.       provide incentives to people to do their best

c.        encourage a division of labor

d.       all of the above

 

48.     Which of the following policies have unintended consequences?

a.        minimum wage laws

b.       FDA drug prohibitions

c.        the public provision of education

d.       all of the above

 

49.     According to Friedman, which of the following is most defensibly performed by the federal government?

a.        the provision of health care

b.       the provision of education

c.        licensing of various important services to protect the public

d.       protection from foreign enemies

 

50.     Why do you suppose public education at the level of university is of generally higher quality than public education at the level of high school?

a.        more resources are devoted to university education

b.       university education is more important to people

c.        there is more competition from the private sector at the university level

d.       there is more competition from the private sector at the high school level

 

Bonus question:

 

51.     Which of the following is not true?

a.        free market economic systems rely on a division of labor in order to function

b.       free market economic systems rely on the acceptance of private property rules in order to function

c.        free market economic systems rely on people being selfish in order to function

d.       free market economic systems have historically achieved higher levels of economic growth than economic systems that are centrally planned.

 

GRADE DISTRIBUTION:

 

If you total score (all three tests) is

greater than or equal to:    your grade is

           85                                A+

           75                                A

           70                                A-

           68                                B+

           65                                B

           62                                B-

           60                                C+

       ELSE                               C

 

Solution:

 

1.      c

2.      c

3.      d

4.      d

5.      c

6.      b

7.      a

8.      d

9.      c

10.  a

11.  c

12.  b

13.  c

14.  a

15.  c

16.  a

17.  d

18.  a

19.  c

20.  b

21.  a

22.  a

23.  a

24.  d

25.  d

26.  b

27.  c

28.  a

29.  d

30.  c

31.  a

32.  a

33.  c

34.  b

35.  b

36.  d

37.  b

38.  a

39.  b

40.  c

41.  d

42.  c

43.  e

44.  e

45.  b

46.  c

47.  d

48.  d

49.  d

50.  c

51.  c