BA 4309 – Regulation of Business, Spring 2003– Test 2.                        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 at end:

 

1.        Which of the following can be argued is a cause of the high price of health care (higher than it would otherwise be)?

a.        high cost of malpractice

b.       licensing of physicians

c.        the presence of third party payments

d.       all of the above

 

  1. Which of the following solutions to the problem of high malpractice insurance rates would continue to protect those cases that obviously have merit?

a.        putting a cap on damages

b.       changing the legal environment to consider malpractice as a case of breech of contract

c.        putting price controls on insurance rates

d.       all of the above

e.        a and c of the above

 

  1. Using a jury to determine the outcome of a malpractice case tends to bias the result in favor of

a.        the doctor

b.       the patient

c.        the insurance company

d.       the drug companies

 

  1. Using licensing as a protective device against competition

a.        is very unusual

b.       is not done by professions like medicine, accounting, etc.

c.        reduces the supply of doctors and raises their earnings

d.       increases the supply of doctors and raises their earnings

 

  1. Which of the following industries is characterized by licensing?

a.        taxis in New York City

b.       barbers in many states

c.        realtors

d.       doctors

e.        all of the above

 

  1. The use of HMO’s to attempt to control medical costs

a.        was an overwhelming success

b.       reduced the number of people wanting to practice medicine

c.        replaced the doctor-patient relationship with a more indirect and bureaucratic one

d.       took away “fee-for-service” payment to the doctors

e.        b, c and d of the above

 

  1. Last year President Bush placed a tariff on the importation of foreign steel. The most likely explanation of this is

a.        an attempt to protect foreign producers

b.       an attempt to protect domestic producers

c.        an attempt to force a reduction in the price of steel

d.       b and c of the above

e.        all of the above

 

  1. According to classical competitive model the extreme opposite of monopoly is

a.        oligopoly

b.       vigorous competition

c.        healthy rivalry

d.       perfect competition

e.        all of the above

 

  1. Which of the following can be argued is a credible policy relevant barrier to entry in an industry

a.        imperfections in the capital market

b.       viable economic size of the business

c.        government imposed and enforced entry requirements

d.       the need to advertise

 

  1. If perfect competitive equilibrium occurs where MC is equal to AC then at this point AC must be

a.        falling

b.       rising

c.        at a minimum

d.       at a maximum

e.        it is impossible to say

 

  1. A monopolist will maximize profits where

a.        total revenue is maximized

b.       total cost is minimized

c.        both of the above are true

d.       none of the above

 

  1. A price “cartel” is a combination of

a.        consumers

b.       workers

c.        sellers

d.       governments

 

  1. In order for a cartel to be effective it must be able

a.        to control the tendency for its members to cheat

b.       to control the entry of other suppliers into the industry

c.        to control a large proportion of the supply of the product

d.       all of the above must be true

 

  1. Price discrimination

a.        is very seldom practiced

b.       is quite common

c.        does not exist at all

d.       is always harmful to consumers

 

  1. In order for price discrimination to occur

a.        the seller must be able to separate the market into sub markets

b.       the elasticity of demand must differ between the submarkets

c.        the elasticity of demand must not differ between the submarkets

d.       a and b of he above

e.        a and c of the above

 

  1. The electricity crises in California was result of

a.        deregulation of the industry

b.       price controls on electricity rates paid by the consumer

c.        controls on the ability of electric companies to use long term contracts

d.       b and c of the above

 

 

  1. Which of the following suggests a natural monopoly?

a.        an AC curve that rises throughout

b.       an AC curve that falls throughout

c.        a firm that is grown organically

d.       a and c of the above

 

  1. Which of the following is an important aspect of natural monopoly?

a.        economies of scale

b.       diseconomies of scale

c.        it is always owned by the government

d.       it is never owned by the government

 

  1. The nature of natural monopoly is that

a.        it must always be regulated

b.       regulation always results in a benefit to the consumer

c.        regulation is always less costly than the benefit it confers on consumers

d.       all of the above are true

e.        none of the above is true

 

  1. Which of the following are possible examples of natural monopolies

a.        defending the nation

b.       cable television

c.        electricity distribution

d.       water distribution

e.        all of the above

 

  1. Consider health care to be a package product. If health care costs are ever to stop rising, a way must be found to

a.        decrease its supply

b.       increase its supply

c.        enforce price controls

d.       nationalize the industry

e.        a and c of the above

 

  1. Which of the following is an example of a legal monopoly?

a.        Microsoft

b.       the government

c.        a legally formed trade union

d.       all of the above

e.        b and c of the above

 

  1. According to Armentano the best way to safeguard competition and guard against monopoly is to

a.        ensure that no legally sanctioned barriers to entry exist

b.       ensure that there are enough competitors in and industry

c.        carefully regulate the pricing behavior of competitors

d.       all of the above

 

  1. According to the classical model of competition, a competitor must be a ____________ and a monopolist is anyone who is a _________________.

a.        price maker, price taker

b.       price taker, price maker

c.        cost reducer, cost increaser

d.       a and c of the above

 

  1. The monopoly laws of the U.S. are essentially designed to do which of the following?

a.        protect consumers from having to pay a price that is too high

b.       protect competitors against unethical competition

c.        protect consumers from being overwhelmed by too much variety

d.       all of the above

 

Solution:

 

1.      d

2.      b

3.      b

4.      c

5.      e

6.      e

7.      b

8.      d

9.      c

10.  c

11.  d

12.  c

13.  d

14.  b

15.  d

16.  d

17.  b

18.  a

19.  e

20.  e

21.  b

22.  e

23.  a

24.  b

25.  a