BA4309  Regulation of Business, FALL 2003 –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.

 

Solution and grade distribution at end.

 

 

  1. Which of the following conditions violate the assumptions necessary for the applicability of the Coase theorem?

a.        there are a large number of people affected

b.       there are only two people affected

c.        the damages are small

d.       at least one of the parties has no wealth

e.        a and d of the above

 

  1. According to the Coase theorem

a.        pollution is never really a problem

b.       there really are no environmental problems

c.        if property rights are well defined and negation is possible there is no environmental problem

d.       all environmental problems can be solved

e.        all of the above

 

  1. Of which of the following can it be argued that it is not really an environmental problem?

a.        depletion of resources

b.       pollution of the ocean

c.        automobile emissions

d.       endangered species

e.        a and d of the above

 

  1. In order to recommend modifications in life style and manufacturing behavior in order to solve the “problem” of global warming, which of the following must be true?

a.        it must be established that global warming is in fact occurring

b.       it must be established that it is occurring as a result of known and modifiable human behavior

c.        it must be established that such behavior can be modified and that the cost of such modification is not greater than the benefit achieved by the slowing of global warming

d.       all of the above

e.        none of the above.

 

  1. Which of the following is the most difficult environmental problem to solve

a.        the drilling for oil in Alaska

b.       the classic upstream-downstream problem

c.        wild life preservation

d.       automobile emissions

 

  1. All environmental “problems” are essentially about

a.        differences of opinion as to how resources ought to be used

b.       good and evil

c.        whether one likes the environment or not

d.       religion

 

  1. A cattle farmer and a corn farmer are located next to each other. The cattle stray into the corn fields and eat the corn. According to the Coase theorem

a.        the cattle farmer should be liable for the damage to the corn farmer

b.       the corn farmer should be responsible for solving the problem

c.        either of the above will work

d.       none of the above will work

 

8.        History teaches us

a.        that free markets alone are sufficient to bring prosperity

b.       that free markets alone are not sufficient to bring prosperity

c.        that a stable and reliable legal structure that enforces property is necessary for the emergence of prosperity

d.       b and c of the above

 

9.        Some inequality

a.        is always the result of economic progress

b.       is not necessarily the result of economic progress

c.        is only sometimes the result of economic progress

d.       is never the result of economic progress

 

  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. All of the employers are prejudiced against women and will not hire them unless they are paid less than men for the same work. Women are willing to work for wages less than men rather than not have a job. There is vigorous competition in the labor market. Under these circumstances which of the following will be the long term result?

a.        firms will be segregated into those employing only men or only women

b.       only firms employing men will survive

c.        only firms employing women will survive

d.       segregated and mixed firms may survive and men and women will be paid the same

e.        segregated and mixed firms may survive and women will be paid less than men according to the degree of prejudice

 

  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 most likely

a.        increase

b.       decrease

c.        remain the same

 

  1. Imagine the following situation: identically qualified and productive workers are divided into men and women (75% men and 25% 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 simply hire the best person for the job. (There are enough non discriminators to employ all the women.) Women are willing to work for wages less than men rather than not have a job. There is vigorous competition in the labor market. Under these circumstances which of the following will be the long term result?

a.        firms will be segregated into those employing only men or only women

b.       only firms employing men will survive

c.        only firms employing women will survive

d.       segregated and mixed firms may survive and men and women will be paid the same

e.        segregated and mixed firms may survive and women will be paid less than men according to the degree of prejudice

 

  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 most likely

a.        increase

b.       decrease

c.        remain the same

 

  1. Advocates of free trade can confidently make the argument that

a.        there are no losers from free trade

b.       free trade always leads immediately to the most efficient methods of production

c.        both of the above

d.       none of the above

 

  1. Which of the following is true?
    1. obstacles to free trade are necessary to achieve prosperity
    2. obstacles to free trade have costs that are greater than the benefits
    3. removing obstacles to free trade never has costs
    4. removing obstacles to free trade never has benefits

 

  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 least?
    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

 

  1. The Coase theorem can be applied to the question of free trade. Imagine there are a small number of producers and a small number of consumers and that negotiation is easy. Producers are afraid of foreign competition. Under which of the following conditions will free trade result?
    1. the right to impose restrictions on the importation of foreign substitutes is awarded on producers
    2. the right to be free of such restrictions is awarded to consumers
    3. either of the above
    4. none of the above

 

18.     Consider the previous question and the conditions necessary for the Coase theorem. It is easier to obtain a restriction on the free importation of  foreign goods than it is to get such restrictions removed. This is most easily explained by the

a.        large number of producers

b.       large number of consumers

c.        large number of consumers compared to the relatively small number of producers

d.       stupidity of government officials

 

  1. Which of the following is illegal according to U. S. law?
    1. cartel formation
    2. price fixing
    3. unethical treatment of one’s competitors
    4. all of the above
    5. a and b of the above

 

  1. What is the usually presumed object of cartel formation?
    1. to make better products
    2. to make higher profits by restricting the sales of the product
    3. to make lower profits by forcing and increase in the sales of the product
    4. none of the above

 

  1. If left unregulated particular cartel formations would most probably
    1. take over the economy
    2. reach a low level equilibrium
    3. break down over time
    4. result in reduced innovation

 

  1. A single seller will try to maximize profits by producing a quantity for which the ________________and this, obviously, implies a ______________than that which would prevail under hypothetical perfect competition.
    1. marginal revenue equals the marginal cost; higher quantity and a lower price

b.       marginal revenue equals the marginal cost; lower quantity and a higher price

c.        marginal revenue is greater than the marginal cost: lower quantity and a higher price

d.       marginal revenue is greater than the marginal cost; higher quantity and a lower price

 

  1. With regard to immigration policy a type I error occurs when
    1. an undesirable (dangerous) immigrant is admitted
    2. a desirable (productive, peaceful) immigrant is refused admission
    3. an immigrant lies about his/her age
    4. a and b of the above

 

  1. With regard to immigration policy a type II error occurs when
    1. an undesirable (dangerous) immigrant is admitted
    2. a desirable (productive, peaceful) immigrant is refused admission
    3. an immigrant lies about his/her age
    4. a and b of the above

 

  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. Which of the following is true?
    1. all environmental problems could be solved if the state had enough power
    2. environmental problems are without exception the result of an inability and/or unwillingness to define and enforce property rights
    3. the only way to solve environmental problems is to have the state decide how resources ought to be used
    4. none 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 pattern of resource usage will not depend on who has the property right to use the resource in question
    5. resource usage is always dependent on who has the property rights

 

  1. The most likely explanation for the recent imposition of a tariff on the importation of steel is
    1. many small domestic steel producers can be expected to become more efficient as a result
    2. it is politically expedient to protect the domestic steel producers from foreign competition
    3. foreign steel producers compete unfairly
    4. a and c of the above

 

  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 consumers are very numerous and would be extremely costly to organize for such a project
    2. because producers can’t be bought, they are patriots
    3. because consumers don’t like beef
    4. a and b of the above

 

  1. The most fundamental question facing the issue of endangered species is
    1. are animals property?
    2. are animals smart?
    3. can animals think?
    4. should we eat animals?

 

31.     Applying the Coase Theorem to the question of drilling for oil in an Alaskan wildlife preserve it would be appropriate to

a.     pass a law requiring drilling to occur

b.    pass a law prohibiting drilling

c.     award an environmental organization title to the wildlife preserve

d.    nationalize the preserve

 

32.     Which of the following most closely resembles a market solution to the problem of air pollution?

a.        the establishment and sale of pollution rights

b.       the imposition of separate pollution limits on each business

c.        nationalizing the air

d.       rewarding businesses with tax-payer money for reducing pollution

 

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

 

34.     Under perfectly discriminating monopoly

a.        every customer would be charged the same price

b.       every customer would be charged a different price

c.        every customer would be charged the maximum price he/she is prepared to pay

d.       none of the above

 

35.     Rising marginal cost gives rise to

a.        economies of scale

b.       economies of scope

c.        barriers to entry

d.       none of the above

 

36.     Perfect competition is considered to be the most efficient possible outcome, this is because

a.        it encourages technological progress

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

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

d.       all of the above

37.     If the Food and Drug Administration slowed down 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. A universal economic law of action is that maximum benefits are obtained where

a.        marginal benefit minus marginal cost equals zero

b.       marginal cost equals marginal benefit

c.        marginal cost is at a minimum

d.       average cost is at a minimum

e.        a and b of the above

 

  1. The most obvious effect of rent control is

a.      a lower average price of housing

b.     lower mortgage rates for housing

c.      higher mortgage rates for housing

d.     a lower rate of return for landlords

 

  1. Landlords can increase the return on rent controlled buildings by

a.      reducing the level of maintenance

b.     increasing the level of maintenance

c.      postponing interest payments

d.     none of the above

 

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

a.        incentive problems

b.       knowledge problems

c.        both of the above

d.       none of the above

 

  1. The price of health care in the United States will not decrease unless somehow there is a

a.       a decrease the demand

b.       an increase the supply

c.       either of both of the above

d.       none or the above will work

 

  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

a.        decrease

b.       increase

c.        make no difference to

d.       none of the above

 

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

a.        Microsoft

b.       The U.S. government

c.        General Electric

d.       IBM

 

45.     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

 

  1. Trade unions and professional associations have which of the following in common?
    1. they both directly control the price of the services they sell
    2. they both directly control the quantity of the services they sell
    3. they both engage in practices that result in an increase in the price of the services they sell
    4. b and c of the above
    5. a and c of the above

 

  1. Which of the following phenomena is responsible for both the rising cost of health care and the impending crises in social security funding?
    1. the aging American population
    2. the rising rate of immigration
    3. the price fixing activities of professional associations
    4. the Iraq war

 

  1. Which of the following policies always has consequence that are the opposite of what is intended?
    1. safety regulation
    2. the abolition of tariffs
    3. price fixing
    4. income subsidies

 

  1. According to the public choice way of thinking
    1. wealthy individuals are likely to form alliances with government to subvert competition
    2. wealthy individuals can never form alliances with government to subvert competition
    3. poor  individuals are likely to form alliances with government to subvert competition
    4. poor individuals can never form alliances with government to subvert competition

 

  1. Consider the previous question. Because of this Thomas Jefferson was led to say which of the following?
    1. the price of democracy is seldom paid
    2. the price of liberty is eternal vigilance
    3. the British are coming
    4. democracy is sorely overrated

 

 

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+

           65                     B

           62                     B-

           60                     C+

      ELSE                    C

 

 

Solution:

 

1.            e

2.            c

3.            e

4.            d

5.            d

6.            a

7.            c

8.            d

9.            a

10.        e

11.        b

12.        d

13.        c

14.        d

15.        b

16.        a

17.        c

18.        c

19.        e

20.        b

21.        c

22.        b

23.        a

24.        b

25.        d

26.        b

27.        d

28.        b

29.        a

30.        a

31.        c

32.        a

33.        c

34.        c

35.        d

36.        c

37.        b

38.        e

39.        d

40.        a

41.        c

42.        c

43.        b

44.        b

45.        d

46.        c

47.        a

48.        c

49.        a

50.        b