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4. List the four types of costs imposed on the economy by government regulations. 5. How are the antitrust laws enforced? Answers for Chapter 29 Fill-in-the-blanks: 1. Natural monopoly 4. vertical 2. Antitrust law 5. conglomerate 3. horizontal Multiple Choice: 1. c. 8. d. 15. c. 2. d. 9. a. 16. d. 3. a. 10. c. 17. d. 4. b. 11. c. 18. c. 5. a. 12. d. 19. c. 6. b. 13. d. 20. a. 7. c. 14. d. 21. d. Problems: 1. Regulating a natural monopoly to earn zero economic profit will lead to problems: (1) The natural monopoly lacks incentives to control costs. If costs of production are reduced (or increase), the natural monopoly may temporarily earn economic profit (or loss). But the price will soon be adjusted down (or up) by the regulators to restore zero economic profit. (2) The regulators may not be able to obtain accurate information. The regulators will have to rely primarily on cost information provided by the regulated natural monopoly. The natural monopoly will have a self-interest in overstating production costs (in order to obtain price increases). FOR REVIEW ONLY - NOT FOR DISTRIBUTION 29 - 13 Government Regulation of Business
2. The capture theory of government regulation holds that the regulatory agency will be captured by the industry being regulated. If the regulated industry captures the regulatory agency, regulations can be used to exclude competition from the industry. 3. The public choice theory of government regulation holds that regulation serves the best interests of the government regulators. Regulators would favor a regulatory approach that led to more regulatory power and a growing budget for the regulatory agency. 4. Government regulations impose costs on the economy: (1) Costs of the regulatory agency (2) Costs to the regulated firm of complying with the regulations (3) Inefficiency costs if the regulations reduce competition (4) Costs of unintended consequences of regulations 5. Antitrust laws are enforced by the Federal Trade Commission and by the Antitrust Division of the Department of Justice. Also, private parties who suffer damages caused by antitrust violations may sue the violator and recover three times the damages proved. FOR REVIEW ONLY - NOT FOR DISTRIBUTION Government Regulation of Business 29 - 14
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PRINCIPLES OF ECONOMICS JEFF HOLT S
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Principles of Economics, 6th Editio
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16. Study Guide for Chapter 7 17. C
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11. Appendix: Book Review - “The
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20. Appendix: The NCAA Cartel 21. S
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Introduction: A Brief History of U.
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In the twentieth century, per capit
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Appendix: The 35 Largest National E
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Multiple Choice: ___ 1. The Jamesto
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2. Describe the economic cost of th
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Chapter 1 Scarcity and Choices The
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Example 5B: At the end of 1982, the
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Example 11: When Cindy quits her jo
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consequences may result in failure
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An upward sloping curve (as in Exam
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In making decisions, humans tend to
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5. ______________________ _________
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___ 13. If the value of one variabl
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Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7
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Chapter 2 Trade and Economic System
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Example 4B: The following quantitie
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1. An increase in the quantity of r
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3. For whom to produce? This is det
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The graph below illustrates the shi
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The two primary economic systems ar
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___ 12. The capitalist vision sees
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___ 25. According to the book “Ca
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Chapter 3 Demand, Supply, and Equil
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. For inferior goods, income and de
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The same information can be placed
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Not only does a free market elimina
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$7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3
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Example 17: The graph below illustr
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Questions for Chapter 3 Fill-in-the
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___ 12. Assuming a market originall
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$8 - 7 - 6 - 5 - Price 4 - 3 - 2 -
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Chapter 4 Inflation and Unemploymen
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Computing the Rate of Inflation The
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Full Employment Though unemployment
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3. Cyclical unemployment - due to d
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During the Great Depression, the ec
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Appendix: Think Like an Economist -
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Answer questions 8. and 9. based on
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___ 25. The extension of unemployme
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Chapter 5 Measuring Total Output: G
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5. Leisure. Leisure time is by defi
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The U.S. is a high per capita GDP c
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Example 17: In “An International
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The simple circular flow diagram be
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___ 3. Which of the following would
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2. Explain what nonproduction trans
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Chapter 6 The Aggregate Market The
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Example 2C: Assume the same facts a
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Example 5B: The price of crude oil
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Price Level Real GDP SRAS AD 2 AD 1
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Appendix: Why the Aggregate Demand
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___ 3. DEF Company can invest in ne
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2. List and explain the two factors
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Chapter 7 Classical Economic Theory
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Notice that the investment demand c
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Long-Run Equilibrium If Real GDP is
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Example 6B: When the economy is in
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Laissez-faire If the economy is sel
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___ 5. According to Say’s Law: a.
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3. On the graph below, draw an aggr
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Chapter 8 Keynesian Economic Theory
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Example 2B: The graph below illustr
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Example 5: Assume that the table be
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Notice on the graph on the previous
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According to Keynesian theory, a ch
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“The General Theory” also inclu
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___ 8. If the consumption function
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3. If the MPC is .667, and investme
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Chapter 9 Fiscal Policy The basic e
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Keynesian Fiscal Policy Theory and
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Example 5A: The federal government
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The Laffer Curve What will happen t
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Appendix: The Importance of Incenti
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___ 4. A decrease in government exp
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2. Explain what automatic stabilize
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Chapter 10 Money, Money Creation, a
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Example 4B: The castaways on Gillig
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Looking at the balance sheet below,
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Demand-side One-shot Inflation Exam
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4. Inflation increases uncertainty
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life; it came into existence not by
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calculated by using the potential d
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___ 12. If the required-reserve rat
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4. Referring to the balance sheet f
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Chapter 11 The Federal Reserve Syst
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5. After Bank X sells the $300,000
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Low Mortgage Interest Rates Mortgag
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Relaxed Standards for Mortgage Loan
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The Bursting of the Housing Bubble
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On February 17, 2009, the federal g
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Fed policies caused short-term inte
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___ 10. The Fed’s most important
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___ 25. In response to the recessio
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Chapter 12 Monetary Policy The basi
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2. A change in aggregate demand (AD
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Monetarist Transmission Mechanism C
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3. Borrowers do not have to seek ou
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Appendix: Book Review - “The Age
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Questions for Chapter 12 Fill-in-th
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___ 16. The primary source of incom
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7. According to Alan Greenspan, wha
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Chapter 13 Taxes, Deficits, and the
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Example 5: In 2015, Taxpayer A had
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of $5 and a quantity of 10 units. T
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The complexity of the tax law also
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the current government spending and
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cut of 1964. The top rate was lower
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___ 6. Federal excise taxes: a. are
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3. How would eliminating the loopho
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Chapter 14 Economic Growth The basi
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2. Labor. Labor can contribute to e
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estricting international trade (e.g
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An improvement in technology (e.g.
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The table below shows the economic
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will increase both Real GDP and per
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___ 8. Which of the following is co
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___ 26. The opinion that economic g
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Chapter 15 Less Developed Countries
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Example 8: Countries A, B, C, and D
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Obstacles to Economic Development f
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c. Restrictions on international tr
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Appendix: Book Review - “The Powe
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Example 25: In Brazil, about half t
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Study Guide for Chapter 15 Chapter
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___ 13. Among the counterproductive
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4. List four ways that governments
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Chapter 16 International Trade The
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Other Benefits of Free Internationa
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Example 6: The graph below illustra
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competitive disadvantage. But dumpi
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is only 25% as productive as before
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Smith was skeptical of government a
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___ 4. For Country X, what is the o
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___ 18. Frédéric Bastiat’s “P
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4. On the graph below: (1) What is
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Chapter 17 Elasticity We are often
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Example 4A: What is price elasticit
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Example 5A: Gertie’s Gas and Go i
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Example 10A: When the price of Good
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Example 13B: On the graph below, su
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$7 - 6 - 5 - Price 4 - 3 - 2 - 1 -
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In the long run, would the deadweig
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___ 7. The factors that determine w
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3. a. Which price (or prices) from
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Chapter 18 Utility The basic econom
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Nonetheless, society generally assu
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Example 9: Capital City operates a
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Marginal rate of substitution - the
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The diamond-water paradox is the ob
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Complete the table below to answer
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4. The graph below shows indifferen
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Chapter 19 The Firm The basic econo
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than contributing to team productio
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1. Difficulty in raising large amou
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Corporations also use self-financin
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Example 24: A blacksmith who produc
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For financing needs, proprietorship
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___ 13. Corporations: a. are comple
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5. List two things that the absence
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Chapter 20 Production and Costs The
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In Example 5B, Birdwell finds that
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variable cost initially decreases,
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Quantity TC MC AFC AVC ATC 0 240 X
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If the scale of operation is increa
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average total cost. Average fixed c
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___ 11. Concerning the cost curves:
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5. Complete the following cost tabl
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Chapter 21 Perfect Competition The
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Even though a perfect competitor ca
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Example 6C: This example builds on
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At what price will there be neither
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Appendix: Perfect Competition in th
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Multiple Choice: ___ 1. A perfect c
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___ 17. Perfect competition: a. req
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Answers for Chapter 21 Fill-in-the-
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Chapter 22 Monopoly Of the four mar
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3. Exclusive ownership of an essent
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maximizing quantity (4 units) creat
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$22 - 20 - 18 - 16 - 14 - Deadweigh
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2. Negotiating, beginning at a high
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Legal barriers are created by gover
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___ 8. The slope of the demand curv
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Price Quantity 3. List some of the
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Chapter 23 Monopolistic Competition
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For Percomp (the perfect competitor
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Example 7A: The graph below represe
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Example 9: The Organization of the
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Example 12 illustrates the dilemma
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its current price and quantity. The
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___ 14. Game theory: a. is a method
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Answers for Chapter 23 Fill-in-the-
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Chapter 24 Factor Markets The basic
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$ $240 - 200 - 160 - 120 - 80 - 40
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Since producers will attempt to equ
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2. Differences in nonmoney aspects
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were his strikeouts, walks, and hom
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___ 3. To maximize profits, a produ
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___ 19. According to the book, “M
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Multiple Choice: 1. a. 8. c. 15. d.
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Chapter 25 Labor Unions The primary
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The elasticity of demand for union
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Example 4A: Assume that the graph b
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Notice from the graph in Example 6
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Wage Factory A Quantity of Labor S
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As a cartel, a labor union faces a
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___ 10. For a monopsony: a. there i
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3. The graph below represents a lab
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Chapter 26 Interest, Present Value,
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An increase in expected rates of re
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An asset is valuable because we exp
Page 432 and 433: Example 13B: General Ordnance prove
Page 434 and 435: Appendix: Present Value Table One f
Page 436 and 437: ___ 4. An increase in expected rate
Page 438 and 439: Problems: 1. List and explain the t
Page 440 and 441: Chapter 27 Market Failure The basic
Page 442 and 443: External Benefit If a market genera
Page 444 and 445: Example 2: To encourage the consump
Page 446 and 447: $100 - 90 - 80 - MSC 70 - $ 60 - 50
Page 448 and 449: A common good is nonexcludable. Non
Page 450 and 451: Study Guide for Chapter 27 Chapter
Page 452 and 453: ___ 5. What government policy would
Page 454 and 455: 4. Based on the information on the
Page 456 and 457: Chapter 28 Public Choice and Govern
Page 458 and 459: Candidates and the Median Voter Mod
Page 460 and 461: Example 8: According to State and F
Page 462 and 463: Example 10: When Elvis Presley was
Page 464 and 465: 4. Pessimistic bias. This is the te
Page 466 and 467: ___ 5. An elected official will: a.
Page 468 and 469: 2. If a certain policy will yield s
Page 470 and 471: Chapter 29 Government Regulation of
Page 472 and 473: underproduction is the amount that
Page 474 and 475: micromanagement results in business
Page 476 and 477: market. They may agree with their c
Page 478 and 479: Questions for Chapter 29 Fill-in-th
Page 480 and 481: ___ 10. The public interest theory
Page 484 and 485: Chapter 30 Agriculture and Health C
Page 486 and 487: weather may cause bumper crops. Bad
Page 488 and 489: Security and Rural Investment Act o
Page 490 and 491: Example 12: From 1960 to 2013, the
Page 492 and 493: 1. NHI would provide universal heal
Page 494 and 495: d. Insurance providers are not allo
Page 496 and 497: Study Guide for Chapter 30 Chapter
Page 498 and 499: Answer questions 7. through 10. by
Page 500 and 501: ___ 21. If there were no individual
Page 502 and 503: Chapter 31 Income Distribution and
Page 504 and 505: Income is more equally distributed
Page 506 and 507: over a typical career is the accumu
Page 508 and 509: Ideal Income Redistribution The ide
Page 510 and 511: Poverty - a family whose income fal
Page 512 and 513: Appendix: Income Inequality around
Page 514 and 515: How is this story an analogy for th
Page 516 and 517: ___ 2. In 2013, the Lowest Income 6
Page 518 and 519: Problems: 1. Explain the two primar
Page 520 and 521: Absolute advantage - when one natio
Page 522 and 523: Fiat money - money by government de
Page 524 and 525: Nonrivalrous good - a good for whic
Page 526 and 527: Absolute advantage, 16-9 Absolute e
Page 528 and 529: “Company town”, 25-6 Comparativ
Page 530 and 531: Eli Lilly and Company, 22-1 Emergen
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Houston, Texas, 15-10 Human capital
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Market, 3-1, 3-8-9 Market basket, 4
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Political bias, 9-4, 12-7 Political
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Short run production, 20-2-3 Short-
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Upturns, 9-4 USDA, 27-9, 30-1-2, 30
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