BA 4309 – Regulation of Business, Spring 2003 –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. Those who support education vouchers argue that it will
    1. provide more accountability by educators to parents
    2. lower the amount of wasteful competition between private and public schools
    3. destroy the public schools
    4. get government out of the business of education altogether

 

  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. Which of the following groups are most opposed to universal school vouchers?
    1. rich students in the suburbs
    2. students in private schools
    3. low income students in the inner cities
    4. the teachers’ unions
    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 into men and women - 70% men and 30% women. All employers are men. Half of the employers are prejudiced against women and will not hire them unless the women 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. 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. environmental problems are basically about the question of how scarce resources ought to be used
    4. the only way to solve environmental problems is to have the state decide how resources ought to be used
    5. b and c 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. Which of the following might cause the Coase theorem not to hold
    1. people are greedy
    2. people are evil
    3. the number of people affected is very large
    4. it is difficult (or impossible) to exclude people from using the resource
    5. c and d of the above

 

  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. Which of the following can be argued is not really an environmental problem?
    1. clean air
    2. clean water
    3. endangered species
    4. global warming
    5. depletion of the ozone layer

 

  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?

 

16.     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

 

17.     In Capitalism and Freedom Milton Friedman advocates an anti-poverty program that has been called the

a.        equity based income tax

b.       progressive-regressive income tax

c.        negative income tax

d.       positive income tax

 

18.     The Social Security Trust Fund

a.        is currently running a deficit

b.       is currently running a surplus

c.        will run an deficit in about ten years

d.       a and c of the above

e.        b and c of the above

 

19.     The Social Security system can be most accurately described as

a.        a retirement insurance system

b.       a retirement investment system

c.        an income redistribution system

d.       an income generating system

 

20.     Which of the following has been suggested as a possible partial solution to  the impending crises in Social Security

a.        making it more efficient

b.       lowering the retirement age

c.        importing more young workers

d.       increasing benefits

 

21.     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

 

22.     Which of the following is not amenable to solution using the Coase theorem?

a.        upstream-downstream problems

b.       the cattle-corn problem

c.        automobile emissions problems

d.       endangered species problems

 

23.     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

 

 

24.     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

 

25.     One explanation of industrial concentration could be

a.        diseconomies of scale

b.       economies of scale

c.        both of the above

d.       none of the above

 

26.     Rising marginal cost gives rise to

a.        economies of scale

b.       economies of scope

c.        barriers to entry

d.       none of the above

 

27.     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

28.     Which of the following best captures the truth about America’s economic development over the past fifty years?

a.        the rich get richer and the poor get poorer

b.       the poor get richer and the rich get poorer

c.        the rich get poorer and the poor get poorer

d.       the rich get richer and the poor get richer

29.     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 opportunity cost of any action is

a.        the value of the best alternative sacrificed

b.       the expense incurred in doing it

c.        the benefit ratio

d.       the time and effort it requires

e.        c or d 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

 

34.     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. According to the text we have been reading, the policy with the greatest hope of preserving endangered species of wild game is

a.        nationalization of wildlife habitats

b.       the creation of property rights

c.        scientific research

d.       subsidized education of the public

 

  1. The problem of global warming is an example of

a.        the tragedy of human greed

b.       the tragedy of the commons

c.        the comedy of humanity

d.       the power of religion

 

37.     The jobs protected by restrictions on international trade

a.        are worth more than the costs of protecting them

b.       are worth less than the costs of protecting them

c.        are priceless

d.       are valueless

 

  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.

a.        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. A laundry is located next to a factory.  The factory pollutes the air immediately around the laundry and increases the amount of the ingredients that it has to use to get its garments clean. If the cost of negotiating an agreement between them is lower than the cost of going to court or of political action and if both have access to substantial capital, then the amount of pollution that occurs will

a.        be greater if the factory has the right to pollute

b.       be lower if the laundry has the right to prevent the pollution

c.        both of the above

d.       none of the above

 

  1. Over the last four decades the overall level of pollution of air and water in the industrialize countries has

a.        become much worse

b.       become a little worse

c.        decreased substantially

d.       stayed the same

 

  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

 

42.     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

 

43.     Victimless crimes are distinguished by the fact that

a.        the victims have no incentive to reveal the crime

b.       the victims all die

c.        the victims don’t know they are victims

d.       they cost more

 

  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?

a.        everyone pays only for what he eats (plus the prorate share of tax and tip)

b.       they divide the bill in five equal shares

c.        they draw lots to see who pays for what

d.       it is impossible to tell

 

45.     Consider the previous question. This story is most relevant to which of the following

a.        rent control

b.       minimum wages

c.        tax cut policy

d.       restrictions on international trade

 

  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

 

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

a.        everyone benefits from free trade

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

c.        both of the above

d.       none of the above

 

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

a.        Microsoft

b.       The U.S. government

c.        General Electric

d.       IBM

 

49.     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

 

50.     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

 

 

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.                    a

2.                    a

3.                    b

4.                    d

5.                    d

6.                    d

7.                    c

8.                    b

9.                    e

10.                 d

11.                 e

12.                 b

13.                 a

14.                 c

15.                 a

16.                 c

17.                 c

18.                 e

19.                 c

20.                 c

21.                 a

22.                 c

23.                 c

24.                 c

25.                 b

26.                 d

27.                 c

28.                 d

29.                 b

30.                 e

31.                 a

32.                 d

33.                 a

34.                 c

35.                 b

36.                 b

37.                 b

38.                 b

39.                 d

40.                 c

41.                 c

42.                 c

43.                 a

44.                 a

45.                 c

46.                 b

47.                 d

48.                 b

49.                 d

50.                 d