Name: ________________________ Class: ___________________ Date: __________
ID: A
Chapter 7 Test True/False Indicate whether the statement is true or false. ____
1. “Truth in advertising laws” are designed to prevent market failures caused by inadequate information.
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2. The U.S. government intervenes in the economy to reduce the costs of imperfect competition.
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3. The government can “internalize an externality” by using the tax system.
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4. An example of a public good is a home computer.
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5. Corporations selling stock to the public must disclose their financial and operating information to both the public and the Securities and Exchange Commission.
Multiple Choice Identify the choice that best completes the statement or answers the question. ____
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6. Perfect competition is characterized by all of the following EXCEPT a. a large number of buyers and sellers. c. sellers acting together to set prices. b. identical products. d. well-informed buyers and sellers. 7. A monopoly that is based on the ownership or control of a manufacturing method, process, or other scientific advance is a a. geographic monopoly. c. government monopoly. b. natural monopoly. d. technological monopoly. 8. A decrease in competition within an industry can result in a. more efficient resource allocation. b. lower prices. c. a firm wielding economic and political power. d. increased output. 9. The Sherman Antitrust Act a. outlawed restraints and monopolies that hindered trade. b. nationalized the railroads. c. established the FDA. d. applied only to banking. 10. The government is involved in the U.S. economy for all of the following reasons EXCEPT to a. promote and encourage competition. b. prevent monopolies that deny the public the benefits of competition. c. regulate industries in which a monopoly is in the public interest. d. promote the development of market externalities. 11. Under perfect competition, a. products are similar but not identical. b. numerous restrictions prevent firms from entering the market. c. no seller sells a product above the prevailing market price. d. a single seller can affect price. 12. When a major car company lowers its prices, other car makers will probably a. maintain existing prices. c. go out of business. b. raise their prices. d. lower their prices. 1
Name: ________________________
ID: A
____ 13. Mergers and acquisitions might result in a. more competition. c. increases in consumer demand. b. smaller companies. d. inadequate competition. ____ 14. The Clayton Antitrust Act a. was opposed by labor unions. c. outlawed price discrimination. b. defended monopolies. d. never went into effect. ____ 15. Indirectly, the government has improved the quality of information available to consumers through a. the SEC. b. its support for the Internet. c. the Federal Reserve System. d. requiring content labels on food products. ____ 16. The Federal Trade Commission (FTC) reviews mergers to ensure that they do not substantially lesson competition. The agency certainly was busy in 1998. In that year, the number of announced mergers involving American companies exceeded 7,750. A survey conducted in 1999 suggests that the FTC’s workload will not dwindle in the near future. Of the companies polled in the survey, more than one third said that they intended to acquire other companies within the year. Source: Bergen Record, April 23, 1999.
This passage suggests a trend toward a. corporate expansion. b. greater competition. c. more power for the Federal Trade Commission. d. deregulation. ____ 17. On an average shopping trip, a consumer’s eye lingers on a product for only about 2.5 seconds. In order to stay competitive, companies experiment with new formulas, along with the color and size of the product’s packaging. These research and development costs can range from $100,000 for adding a new color to an existing product line to millions of dollars for the creation of a new product.
a. b.
According to the passage, companies are trying to compete through economies of scale. c. product differentiation. price-fixing. d. nonprice competition.
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Name: ________________________
ID: A
____ 18. A rose is a rose is a rose, wrote Gertrude Stein. But don’t tell that to flower sellers who are trying to differentiate themselves from their fellow petal-pushers. To stand out in a crowd, U.S.A. Floral Products, the nation’s biggest flower distributor, is test-marketing a plan to sell flowers sporting a tag telling consumers the last date the flowers can be sold for maximum freshness—the equivalent of a “sell by” date on a quart of milk. Source: Business Week, February 15, 1999.
Based on the passage, U.S.A. Floral Products is differentiating its product from competitors’ by trying to convince customers that its roses are a. more red. c. less expensive. b. fresher. d. higher quality.
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By passing truth-in-advertising laws, the government hopes to influence producers, such as the toy manufacturer in the cartoon, to a. hide product defects. c. stop advertising to children. b. make better products. d. lower the prices of their products.
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Name: ________________________
ID: A
____ 20.
a. b.
In the graph, suppose the firm increases production to 148 units. This will result in an increase in total profit. c. an increase in marginal revenue. a decrease in total profit. d. a decrease in marginal revenue.
Matching Match each statement with the correct item below. a. formal agreement to set prices or to behave in a cooperative manner b. requirement that businesses reveal information to the public c. series of competitive price cuts by all sellers that leads to unusually low prices d. market structure with only one seller of a product e. products that are collectively consumed by everyone f. practice of charging customers different prices for the same product g. supply side of the market h. exclusive right to manufacture, use, or sell any new and useful machine, manufacture, or composition of matter i. market structure that lacks one or more of the conditions of perfect competition j. exclusive right of authors and artists to publish, sell, or reproduce their work ____ ____ ____ ____ ____
21. 22. 23. 24. 25.
industry copyright collusion public goods price war
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