Econ 202: Practice Exam Quiz!
Can you identify with Econ 202? Econ is shortform for economics. With this quiz, you must be aware of a market situation in which a few large firms are called, what is an oligopolistic market, the two major types of government regulation, and the first anti-trust law in the United States. This quiz will help you practice for the exam. Give it a shot.
- 1.
A market situation in which there are a few large firms is called
- A.
Monopolistic competition
- B.
Monopoly
- C.
Oligopoly
- D.
Imperfect competition
Correct Answer
C. OligopolyExplanation
Oligopoly refers to a market structure characterized by a few large firms dominating the market. In such a situation, these firms have significant control over the market and can influence prices and competition. Unlike monopoly, where there is only one dominant firm, or monopolistic competition, where there are many small firms, oligopoly represents a balance between competition and concentration of power. This market structure often leads to interdependence among the firms, as their actions and decisions can have a significant impact on each other and the overall market.Rate this question:
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- 2.
In an oligopolistic market, each firm
- A.
Faces a perfectly elastic demand function
- B.
Produces at minimum average cost in the long run
- C.
Has a constant marginal cost
- D.
Must consider the reaction of rival firms when making a pricing or ouptput decision
Correct Answer
D. Must consider the reaction of rival firms when making a pricing or ouptput decisionExplanation
In an oligopolistic market, firms have a significant influence on the market due to their size and market share. As a result, any decision made by one firm, such as pricing or output decisions, can have a significant impact on the other firms in the market. Therefore, each firm must consider the reaction of rival firms when making these decisions to avoid potential retaliation or negative consequences. This is necessary to maintain a competitive position and avoid losing market share or profitability.Rate this question:
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- 3.
An oligopoly is a market situation in which:
- A.
All the sellers act independently of others
- B.
There is a single firm producing several varieties of a product
- C.
There are very few sellers and they recognize their strategic dependence on one another
- D.
There are many firms producing differentiated products
Correct Answer
C. There are very few sellers and they recognize their strategic dependence on one anotherExplanation
In an oligopoly, there are very few sellers and they recognize their strategic dependence on one another. This means that the sellers in the market understand that their actions and decisions can have a significant impact on the other sellers. They are aware that any changes in their pricing, production, or marketing strategies can affect the overall market dynamics and the profits of all the sellers involved. Therefore, they often engage in strategic behavior such as price collusion or non-price competition to maintain their market position and maximize their profits.Rate this question:
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- 4.
The most common reason for the existence of oligopolies is:
- A.
Diseconomies of scale
- B.
Economies of scale
- C.
Ease of entry
- D.
Advertising
Correct Answer
B. Economies of scaleExplanation
Oligopolies are characterized by a small number of large firms dominating a market. The existence of oligopolies can be attributed to economies of scale. Economies of scale refer to the cost advantages that firms experience as they increase their production levels. In an oligopoly, large firms can take advantage of economies of scale to lower their average costs and maintain a competitive edge. This makes it difficult for new firms to enter the market and compete effectively. Therefore, economies of scale play a crucial role in explaining the existence of oligopolies.Rate this question:
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- 5.
Monopolies and oligopolies both erect barriers to entry through the use of:
- A.
Advertising
- B.
Price cutting
- C.
Franchising
- D.
Patents
Correct Answer
D. PatentsExplanation
Monopolies and oligopolies can use patents to erect barriers to entry. A patent grants exclusive rights to an inventor for a certain period, preventing others from using, making, or selling the patented product or process without permission. By obtaining patents, monopolies and oligopolies can limit competition by preventing others from entering the market with similar products or technologies. This allows them to maintain their market dominance and potentially charge higher prices. Therefore, patents serve as a tool to restrict competition and protect the market power of monopolies and oligopolies.Rate this question:
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- 6.
Suppose an industry has total sales of $25 million per year. The two largest firms have sales of $6 million each, the third-largest firm has sales of $2million, and the fourth largest firm has sales of $1 million. The four-firm concentration ratio for this industry is
- A.
36 percent
- B.
60 percent
- C.
25 percent
- D.
50 percent
Correct Answer
B. 60 percentExplanation
The four-firm concentration ratio measures the combined market share of the four largest firms in an industry. In this case, the total sales of the two largest firms are $6 million each, the third-largest firm has sales of $2 million, and the fourth largest firm has sales of $1 million. Adding these up, the combined sales of the four largest firms is $6 million + $6 million + $2 million + $1 million = $15 million. To calculate the concentration ratio, we divide the combined sales of the four largest firms by the total industry sales and multiply by 100. Therefore, the concentration ratio is ($15 million / $25 million) x 100 = 60 percent.Rate this question:
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- 7.
Within a game theory model, if a change in decision-making raises corporation A's profits by $50 and lowers corporation B's profits by $50, the game is a
- A.
Positive-sum game
- B.
Zero-sum game
- C.
Cooperative game
- D.
Negative-sum game
Correct Answer
B. Zero-sum gameExplanation
In a zero-sum game, the total gains and losses of the players involved are balanced. This means that any gain for one player is exactly offset by an equal loss for the other player. In this case, the change in decision-making results in a $50 increase in profits for corporation A, but a $50 decrease in profits for corporation B. Since the gains and losses cancel each other out, the overall outcome is a zero-sum game.Rate this question:
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- 8.
The two basic types of government regulation are:
- A.
Economic regulation and industry regulation
- B.
Regulation of natural monopolies and regulation of cartels
- C.
Social regulation and labor law
- D.
Social regulation and economic regulation
Correct Answer
D. Social regulation and economic regulationExplanation
The correct answer is social regulation and economic regulation. Social regulation refers to government intervention in order to protect public health, safety, and the environment. It includes regulations on pollution control, workplace safety, and consumer protection. Economic regulation, on the other hand, involves government oversight and control of prices, entry barriers, and other aspects of industries to promote fair competition and prevent monopolistic practices. Both types of regulation aim to ensure the well-being of society and maintain a balance between economic growth and social welfare.Rate this question:
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- 9.
Which type of regulation applies to all firms in the economy, as opposed to only covering specific industries?
- A.
Social regulation
- B.
Economic regulation
- C.
Statutory regulation
- D.
Rate regulation
Correct Answer
A. Social regulationExplanation
Social regulation applies to all firms in the economy, as opposed to only covering specific industries. It focuses on the protection of public health, safety, and the environment. Social regulation aims to ensure that businesses operate in a responsible and ethical manner, promoting fair competition, consumer protection, and the overall well-being of society. This type of regulation sets standards and guidelines that apply to all industries, helping to maintain a level playing field and prevent harmful practices that could negatively impact individuals and the broader community.Rate this question:
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- 10.
Which type of regulation applies to all firms in the economy, as opposed to only covering specific industries?
- A.
Statutory regulation
- B.
Rate regulation
- C.
Economic regulation
- D.
Social regulation
Correct Answer
D. Social regulationExplanation
Social regulation is a type of regulation that applies to all firms in the economy, regardless of the industry they belong to. It focuses on protecting public welfare, health, safety, and the environment. This type of regulation aims to ensure that businesses operate in a socially responsible manner and comply with certain standards and guidelines set by the government. It covers various areas such as labor practices, consumer protection, environmental protection, and occupational health and safety. Social regulation is different from other types of regulation, such as statutory regulation or rate regulation, which may only apply to specific industries or sectors.Rate this question:
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- 11.
The first antitrust law in the United States was the:
- A.
Clayton Act
- B.
Robinson-Patman Act
- C.
FTC Act
- D.
Sherman Act
Correct Answer
D. Sherman ActExplanation
The correct answer is the Sherman Act. The Sherman Act was the first antitrust law in the United States, enacted in 1890. It aimed to prevent monopolies and promote fair competition in business. The act prohibits activities that restrict trade, such as price-fixing and monopolistic practices, and allows the government to take legal action against companies engaged in anti-competitive behavior. The Sherman Act laid the foundation for subsequent antitrust legislation and remains a crucial tool in regulating business practices in the United States.Rate this question:
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- 12.
The primary antitrust statute in the United States is the:
- A.
NLRA of 1935
- B.
Sherman Antitrust Act of 1890
- C.
SEC Act of 1933
- D.
Federal Reserve Act of 1913
Correct Answer
B. Sherman Antitrust Act of 1890Explanation
The correct answer is the Sherman Antitrust Act of 1890. This legislation is considered the primary antitrust statute in the United States. It was enacted to prevent monopolies and promote fair competition in the marketplace. The Sherman Antitrust Act prohibits certain business practices that restrain trade, such as price-fixing, bid-rigging, and monopolistic mergers. It has been instrumental in regulating and breaking up large corporations that engage in anti-competitive behavior, ensuring a level playing field for businesses and protecting consumer interests.Rate this question:
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- 13.
Which of the following would most likely promote competitive pricing of products?
- A.
Clayton Act
- B.
Wheeler-Lea Act
- C.
Robinson-Patman Act
- D.
Federal Trade Commission Act
Correct Answer
C. Robinson-Patman ActExplanation
The Robinson-Patman Act would most likely promote competitive pricing of products. This act prohibits price discrimination that gives an advantage to certain buyers or sellers, ensuring that all competitors have equal opportunities. By preventing unfair pricing practices, the act encourages businesses to compete on a level playing field, leading to more competitive pricing of products.Rate this question:
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- 14.
The Federal Trade Commission regulates which of the following?
- A.
Financial markets
- B.
The banking industry
- C.
Trade with third world countries
- D.
Unfair trade practices by businesses
Correct Answer
D. Unfair trade practices by businessesExplanation
The Federal Trade Commission is responsible for regulating and enforcing laws related to unfair trade practices by businesses. This includes actions such as false advertising, deceptive marketing, and unfair competition. The FTC aims to protect consumers from fraudulent and deceptive business practices, ensuring fair competition and promoting consumer welfare.Rate this question:
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- 15.
The Federal Trade Commission Act was designed to:
- A.
Prohibit bundling
- B.
Limit company profits from foreign sales
- C.
Prohibit cutthroat pricing
- D.
Increase foreign trade
Correct Answer
C. Prohibit cutthroat pricingExplanation
The correct answer is "prohibit cutthroat pricing." The Federal Trade Commission Act was enacted to prevent unfair methods of competition in commerce, including practices like cutthroat pricing. Cutthroat pricing refers to a strategy where a company sets its prices significantly lower than its competitors in order to drive them out of business. This practice can harm competition and consumers, and the FTC Act aims to prohibit such anti-competitive behavior.Rate this question:
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- 16.
The regulatory agency most concerned with false advertising is the:
- A.
Federal Trade Commission
- B.
Antitrust Division of the Justice Department
- C.
National Labor Relations Board
- D.
Federal Deposit Insurance Corp.
Correct Answer
A. Federal Trade CommissionExplanation
The Federal Trade Commission (FTC) is the regulatory agency most concerned with false advertising. The FTC is responsible for enforcing laws against deceptive and unfair business practices, including false advertising. They work to protect consumers from misleading claims and ensure fair competition in the marketplace. The Antitrust Division of the Justice Department focuses on preventing anticompetitive behavior, the National Labor Relations Board deals with labor-related issues, and the Federal Deposit Insurance Corp. is responsible for insuring deposits in banks.Rate this question:
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- 17.
Which antitrust act was passed to protect independent retailers from "unfair discrimination" by chain stores?
- A.
FTC Act
- B.
Wheeler-Lea Act
- C.
Robinson-Patman Act
- D.
Sherman Act
Correct Answer
C. Robinson-Patman ActExplanation
The Robinson-Patman Act was passed to protect independent retailers from "unfair discrimination" by chain stores. This act prohibits price discrimination that harms competition and independent retailers by ensuring that sellers offer the same price and terms to all buyers. It aims to prevent large chain stores from using their market power to obtain better prices and terms compared to smaller retailers, thus promoting fair competition in the retail industry.Rate this question:
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- 18.
All of the following are exempt from antitrust laws EXCEPT:
- A.
Oil companies
- B.
Public utilities
- C.
Professional baseball
- D.
Labor unions
Correct Answer
A. Oil companiesExplanation
Antitrust laws are designed to promote fair competition and prevent monopolies. Oil companies, like any other industry, are subject to antitrust laws to ensure fair competition. Therefore, oil companies are not exempt from antitrust laws.Rate this question:
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- 19.
Which of the following is NOT exempt from antitrust laws?
- A.
Public transit systems
- B.
Professional baseball
- C.
Airlines
- D.
Labor unions
Correct Answer
C. AirlinesExplanation
Airlines are not exempt from antitrust laws because they are subject to regulations that prevent them from engaging in anti-competitive practices. Antitrust laws are in place to promote fair competition and prevent monopolies or collusion among businesses. Public transit systems, professional baseball, and labor unions may have certain exemptions or regulations specific to their industries, but airlines do not have such exemptions and must comply with antitrust laws.Rate this question:
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- 20.
The act of selling an item in slightly altered forms at different prices and to different groups of consumers is known as?
- A.
Bundling
- B.
Tie-in sales
- C.
Versioning
- D.
Lemons marketing
Correct Answer
C. VersioningExplanation
Versioning refers to the act of selling an item in slightly altered forms at different prices and to different groups of consumers. This strategy allows businesses to cater to different market segments and maximize their profits by offering variations of their product or service that meet the specific needs and preferences of different customer groups. By tailoring their offerings to different segments, businesses can effectively target and capture a wider range of customers, ultimately increasing their sales and market share.Rate this question:
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- 21.
The primary measure of monopoly power is called the:
- A.
Litmus text
- B.
Monopoly measure
- C.
Robinson-Patman Act ratio
- D.
Market share test
Correct Answer
D. Market share testExplanation
The market share test is the primary measure of monopoly power because it examines the percentage of a market controlled by a single firm. This test determines the level of market concentration and the potential for anti-competitive behavior. A high market share indicates a greater ability to influence prices and restrict competition, suggesting a stronger monopoly power. Therefore, the market share test is a crucial tool for assessing the extent of monopoly power in a given market.Rate this question:
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- 22.
The Sudsy Soda Company will not sell its soft drinks to a restaurant unless that business also buys paper cups from Sudsy. This requirement is an example of:
- A.
Price differentiation
- B.
Complementary pricing
- C.
Product versioning
- D.
Tie-in sales
Correct Answer
D. Tie-in salesExplanation
Tie-in sales refers to a strategy where a company requires customers to purchase additional products or services in order to obtain the desired product. In this case, the Sudsy Soda Company is using tie-in sales by only selling their soft drinks to restaurants if they also purchase paper cups from Sudsy. This strategy helps Sudsy increase their sales of paper cups by bundling them with their soft drinks, creating a mutually beneficial relationship between the company and the restaurant.Rate this question:
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- 23.
The market demand curve for labor:
- A.
Slopes upward
- B.
Slopes downward
- C.
Is horizontal at the going wage rate
- D.
Is vertical at the existing supply of labor
Correct Answer
B. Slopes downwardExplanation
The market demand curve for labor slopes downward because as the wage rate increases, employers are willing to hire fewer workers. This is because higher wages increase the cost of labor for businesses, leading them to reduce their demand for workers. Additionally, as wages increase, workers may choose to work fewer hours or exit the labor market altogether, further reducing the demand for labor. Therefore, the downward slope of the market demand curve for labor reflects the inverse relationship between wages and the quantity of labor demanded.Rate this question:
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- 24.
An industry's equilibrium wage rate is established:
- A.
By the slope of the industry demand curve for labor alone
- B.
By the industry supply curve for labor alone
- C.
By the Labor Deparment and based on the cost of living in the area
- D.
By the intersection of the industry supply and demand curves for labor
Correct Answer
D. By the intersection of the industry supply and demand curves for laborExplanation
The equilibrium wage rate in an industry is determined by the intersection of the industry supply and demand curves for labor. This is because the supply curve represents the quantity of labor that workers are willing to provide at different wage rates, while the demand curve represents the quantity of labor that employers are willing to hire at different wage rates. The point where these two curves intersect represents the wage rate at which the quantity of labor supplied equals the quantity of labor demanded, resulting in a stable equilibrium.Rate this question:
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Mar 21, 2023Quiz Edited by
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Apr 28, 2010Quiz Created by
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