ch11 - File: Ch11; CHAPTER 11: Regulation, Public Goods,...

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File: Ch11; CHAPTER 11: Regulation, Public Goods, and Benefit-Cost Analysis Each question contains a code showing the section of the chapter text from which it was taken. The codes for this chapter are: Code Section 1 Market Failure Due to Monopoly 2 Market Failure Due to Externalities 3 Market Failure Due to Imperfect Information 4 Public Goods 5 The Basics of Benefit-Cost Analysis 6 Evaluating a Public Project 7 Valuing Benefits and Costs MULTIPLE CHOICE 1. Market efficiency is typically achieved by a) A small number of dominant oligopolists whose large size ensures low cost. b) Leading firms that practice genuine social responsibility. c) Competitive firms that produce goods at minimum cost and that maximize benefits for consumers. d) Command-and-control type regulations. e) Answers b and c are both correct. ANSWER: c SECTION: 1 2. An efficient competitive outcome means that a) The market maximizes total net benefits (the sum of consumer surplus and producer profit). b) Both consumer surplus and producer profit are strictly positive. c) The market is generating positive (beneficial) externalities. d) Normal shifts in demand and supply will result in a new, efficient industry output and price. e) Answers a and d are both correct. ANSWER: e SECTION: 1 3. Market failures are usually caused by a) Unexpected shifts in demand and supply. b) The persistence of monopoly power. c) Diseconomies of scale. d) Destructive price wars. e) Answers a, b, and c are all correct. ANSWER: b SECTION: 1 11-1
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Regulation, Public Goods, and Benefit-Cost Analysis 4. Compared to perfect competition, monopolized markets result in a) Higher prices and greater total output. b) Higher prices and decreased total output. c) Greater producer profit but lower consumer surplus. d) A smaller total deadweight loss. e) Answers b and c are both correct. ANSWER: e SECTION: 1 5. Antitrust actions are intended to a) Remedy problems caused by imperfect information. b) Break up mega-firms when they grow too large. c) Reduce excessive windfall profits earned by firms. d) Prevent firm behavior that leads to the monopolization of markets. e) Answers b, c, and d are all correct. ANSWER: d SECTION: 1 6. The normal regulatory response in the case of a natural monopoly is a) Not to intervene at all. b) To set the regulated price equal to average cost. c) To break up the natural monopolist. d) To set the regulated price such that marginal revenue equals marginal cost. e) None of the answers above is correct. ANSWER: b SECTION: 1 7. The inefficiencies that result from negative externalities can be eliminated by a) Subsidizing consumers so as to decrease the effective price and increase output. b) Taxing consumers so as to increase the effective price and make production profitable.
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This note was uploaded on 03/11/2012 for the course ECON 333 taught by Professor Barkley during the Fall '08 term at CSU Fullerton.

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ch11 - File: Ch11; CHAPTER 11: Regulation, Public Goods,...

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