Download Ch - PC

Ch. 6 & 7 Test
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____
____
____
1. At a given price, a surplus occurs when
a. the quantity demanded is more than the quantity supplied.
b. the quantity demanded is the same as the quantity supplied.
c. the quantity supplied is less than the quantity demanded.
d. the quantity supplied is greater than the quantity demanded.
2. If a competitive market is at equilibrium, and if there is a sudden increase in demand, then a
temporary
a. surplus will occur and the price will increase.
b. shortage will occur and the price will fall.
c. surplus will occur and the price will fall.
d. shortage will occur and the price will increase.
3.
Market Demand and Supply Schedules
Price
$20
18
16
14
12
10
____
4.
____
5.
____
6.
____
7.
Quantity
Demanded
0
2
4
7
11
13
Quantity
Supplied
20
16
10
7
5
0
Surplus/
Shortage
20
14
6
0
?
–13
In the table, market equilibrium will occur at what price?
a. $20
c. $14
b. $16
d. $10
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.
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.
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.
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.
8. 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.
9. The Clayton Antitrust Act
a. was opposed by labor unions.
c. outlawed price discrimination.
b. defended monopolies.
d. never went into effect.
____ 10.
What letter on the graph represents the proper location for the market structure “oligopoly”?
a. W
c. Y
b. X
d. Z
____ 11.
What letter on the graph represents the proper location for the market structure
“monopoly”?
a. W
c. Y
b. X
d. Z
____ 12.
Based on the graph, the top 4 companies in the soft drink industry produced what
percentage of all soft drink output?
a. 90%
b. 87%
c. 85%
d. 82%
____ 13.
When Gillette Co. unveiled Mach3, the world’s first triple-blade razor, it took a bold
gamble.... Mach3 cartridges were to sell for around $1.60 each. Skeptics predicted the
personal-care giant would soon be forced to cut that price. But the price is holding and Mach3
has become the No. 1 blade and razor. What’s the secret to pricing power? For starters, a
commitment to innovation. Gillette spent nearly $1 billion on the development and initial
marketing of Mach3.
Source: Business Week, February 1, 1999
Based on the passage, what type of monopoly is helping Gillette Co. maintain a high price
for its Mach3 razor?
a. natural monopoly
c. technological monopoly
b. government monopoly
d. geographic monopoly
For the Clayton Act, replace the description with: “Outlawed price discrimination”
For the FTC Commission Act, replace the description with “Established an organization to
regulate unfair methods of competition in interstate commerce”
____ 14.
What law should replace the letter “Z” in the illustration?
a. Clayton Antitrust Act
c. Robinson-Patman Act
b. Sherman Antitrust Act
d. Federal Trade Commission Act
____ 15.
Which letter in the illustration represents the proper location for the Clayton Antitrust Act?
a. W
c. Y
b. X
d. Z
Federal Regulatory Agencies
Agency
P
Function
Regulates television, radio, telegraph, and telephone; grants licenses,
creates and enforces rules of behavior for broadcasting.
Regulates the workplace environment; makes sure that businesses provide
workers with safe and healthful working conditions.
Regulates the nuclear power industry; licenses and oversees the design,
construction, and operation of nuclear power plants.
Responsible for working to reduce discrimination based on religion, gender,
race, national origin, or age.
Regulates product warranties, unfair methods of competition in interstate
commerce, and fraud in advertising.
Develops and enforces environmental standards for air, water, and toxic
waste.
Regulates purity and safety of food, drugs, and cosmetics.
Regulates the sale of stocks, bonds, and other investments.
Q
R
S
T
U
V
W
____ 16.
a. P
b. T
____ 17.
a.
b.
c.
d.
What letter in the table represents the Securities and Exchange Commission?
c. W
d. R
The letter “Q” in the table represents what federal regulatory agency?
Equal Employment Opportunity Commission
Occupational Safety and Health Administration
Environmental Protection Agency
Nuclear Regulatory Commission
Characteristics of Market Structures
Market
Structure
P
Q
R
S
____ 18.
Number of Firms
in Industry
Few
One
Many
Many
Influence over
Price
Some
Extensive
None
Limited
Entry into
Market
Difficult
Almost Impossible
Easy
Easy
What market structure does the letter “R” in the table represent?
a. perfect competition
c. pure monopoly
b. oligopoly
d. monopolistic competition
“Pure monopoly” should replace what letter in the table?
a. P
c. R
b. Q
d. S
____ 20. 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.
____ 19.
According to the passage, companies are trying to compete through
a. economies of scale.
c. product differentiation.
b. price-fixing.
d. nonprice competition.
____ 21.
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.
____ 22.
Suppose the government passed a law, taxing manufacturers according to the amount of
pollutants they release into the environment. This law would be an example of which regulatory
function of government shown in the illustration?
a. protect consumers
b. supervise labor/management relations
c. promote competition
d. regulate negative externalities
____ 23.
Suppose the government passed a new antitrust law. This law would be an example of
which regulatory function of government shown in the illustration?
a. protect consumers
b. supervise labor/management relations
c. promote competition
d. regulate negative externalities
____ 24.
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.
Completion
Complete each sentence or statement.
25. ____________________ serve as signals to both producers and consumers.
26. ____________________ prices are signals for businesses to produce more and for consumers to
buy less.
27. Some economists argue that the ____________________ actually increases the number of people
who do not have jobs.
28. Target prices, or ____________________, can create surpluses of agricultural crops.
29. A price ____________________ is the maximum legal price that can be charged for a product.
30. When producers are left with a ____________________ of products, they may reduce prices.
31. Producers do not like to see a ____________________ in the market because that means they
could have sold more product if they had supplied more.
32. The minimum wage is the ____________________ for wages in the United States.
33. To stimulate sales, a manufacturer may offer a temporary price reduction by providing a
____________________.
34. Receiving drain on your lawn from a neighbor's sprinkler system is an example of a
_________________________.
35. Public goods are usually provided by the ____________________, not the market.
Short Answer
APPLYING SKILLS
Using Tables: Study the table and answer the questions below.
Annual Supply and Demand for
portable CD players
(in Thousands)
Price
$40.00
$42.50
$45.00
$47.50
$50.00
$52.50
$55.00
$57.50
$60.00
$62.50
Quantity
Demanded
14
12
11
9
7
5
4
3
2
1
Quantity
Supplied
0
1
2
3
4
5
7
9
10
12
36.
What is the equilibrium price for portable CD players?
37.
What would be the result of a $45.00 price ceiling on portable CD players?
38.
If only one firm supplied all CD players and that firm decided to produce 8,000 CD
players priced at $57.50, what would be the result?
APPLYING SKILLS
Using Tables: Study the table and answer the questions below.
Annual Supply and Demand for VCRs
(in Thousands)
Price
$100
$110
$120
$130
Quantity
Demanded
23
22
20
18
Quantity
Supplied
3
4
5
10
$140
$150
$160
$170
$180
$190
16
14
10
6
3
2
12
14
18
26
30
34
39.
What is the equilibrium price for VCRs?
40.
If only one firm supplied all VCRs and that firm decided to produce 16,000 of them at
$160, what would be the result?
41.
What would be the result of a $110 price ceiling on VCRs?
42.
What is the equilibrium price on this graph? Explain what that means.
43.
Market Demand and Supply Schedules
Price
$20
18
16
Quantity
Demanded
0
2
4
Quantity
Supplied
20
16
10
Surplus/
Shortage
20
14
6
14
12
10
7
11
13
7
5
0
0
?
–13
At a price of $12 in the table, does the market have a surplus or shortage? of how
many units? Explain how you know.
44.
Summarizing Information Describe the five conditions necessary for perfect
competition to exist.
45.
Analyzing Information Name and describe three forms of monopolies.
46.
Study the graph. In one sentence, explain the meaning of the bar for “Domestic
Motor Vehicles.”
47.
When Gillette Co. unveiled Mach3, the world’s first triple-blade razor, it took a bold
gamble.... Mach3 cartridges were to sell for around $1.60 each. Skeptics predicted the
personal-care giant would soon be forced to cut that price. But the price is holding and Mach3
has become the No. 1 blade and razor. What’s the secret to pricing power? For starters, a
commitment to innovation. Gillette spent nearly $1 billion on the development and initial
marketing of Mach3.
Source: Business Week, February 1, 1999.
Read the passage. What might eventually force Gillette Co. to cut the price for its
Mach3 cartridges?
48.
In one sentence, summarize what this cartoon is saying about the effect of monopoly
on the consumer.
49.
This cartoon refers to the antitrust lawsuit filed by the Justice Department
against Microsoft Corporation. The cartoonist is comparing this court battle to
what?
50.
The [White House] is expected to announce as early as next week requirements for cleaner
gasoline and tougher pollution standards for the nation’s automobiles. The expected
regulations would also force sport utility vehicles and pickup trucks to meet the stricter
standards for passenger cars for the first time.
Environmentalists are pleased, but the oil and auto industries say gasoline prices for all
drivers and the costs of sport utility vehicles and pickup trucks would be increased.
Source: The New York Times, April 14, 1999.
According to the passage, what are the possible trade-offs for consumers in
return for reduced pollution?
51.
We live in increasingly intolerant times.... Mobile telephones are the latest target: some
trains,...restaurants and even golf courses are being designated “no phone” areas.
The Economist would like to suggest restrictions on another source of noise pollution:
children.... Smoking, driving and mobile phones all cause what economists call “negative
externalities:.... For children, just like cigarettes or mobile phones, clearly impose a negative
externality on people who are near them. Anybody who has suffered a 12-hour flight with a
bawling baby in the row immediately ahead or a bored youngster viciously kicking their seat
from behind, will grasp this quickly....
Source: “Mum’s the Word,” The Economist, December 5, 1998.
Based on the passage, in what ways do children on an airplane represent a negative
externality?
Essay
52.
Whatever toy becomes this season’s Furby will probably be in skimpy supply, thanks
to an industrywide shortage of the electronic guts so vital to today’s playthings. So if you
think your kids will be clamoring for any of the potential hot toys..., be sure to shop now....
...[As for] PlayStation 2, Sony’s update of its popular video-game console, ...
“Shoppers shouldn’t wait until Thanksgiving,” says Toy Wishes’ Jim Silver, “given the huge
shortage we’re expecting.”
Source: Kiplinger’s Personal Finance Magazine, November, 2000.
Based on this passage and what you know about supply and demand, describe what
you think will happen to the price of PlayStation 2 and explain why.
53.
If Massachusetts Institute of Technology students don’t know the law of supply and demand
coming into school, they sure have it down by graduation. Just ask Steve Shapiro. Like all
graduating seniors, he was allotted four free tickets to his June 4 commencement. But 11
relatives are planning to attend.... Enter the Graduation Ticket Trading Center, a Web site set
up by MIT’s class of 1999 for seniors who want to buy or sell tickets to the ceremony.... It’s
clearly a seller’s market. Most suppliers were looking for about $100 a ticket....
“Engineering Extra Tickets,” USA Today, May 27, 1999.
Using what you know about supply and demand, explain what is meant by a “seller’s
market” in the passage.
54.
Market Demand and Supply Schedules
Price
$20
18
16
14
12
10
Quantity
Demanded
0
2
4
7
11
13
Quantity
Supplied
20
16
10
7
5
0
Surplus/
Shortage
20
14
6
0
?
–13
Suppose sellers of the product described in the table set their price at $18. What
evidence will they see that tells them that this price is too high? Use supply and
demand concepts to explain how the sellers in this example will likely adjust their
price.
55.
Making Comparisons What are the differences in how an oligopoly and a
monopoly conduct business?
56.
Understanding Cause and Effect What positive and negative externalities
might be the consequence of the building of a new interstate highway in your
community?
57.
American enterprise is not free; the man with only a little capital is finding it harder to get
into the field, more...impossible to compete with the big fellow. Why? Because the laws of
this country do not prevent the strong from crushing the weak...and because the strong have
crushed the weak the strong dominate...the industry and the economic life of this country....
[T]he larger kinds of credit are...difficult to obtain, unless you obtain them upon the terms of
uniting your efforts with those who already control the industries of the country.... [A]ny man
who tries to set himself up in competition with any process of manufacture...under control of
large combinations of capital will presently find himself...squeezed out or obliged to sell and
allow himself to be absorbed.
Source: Woodrow Wilson, in a 1912 presidential campaign speech.
Based on this passage, would Woodrow Wilson have favored stronger antitrust laws
or less government interference with business? Explain.
58.
Why does government, rather than private companies, provide the things shown in
the illustration?