Final Exam Practice Questions
Econ 651
Dr. John Horowitz
1) The transactions costs of writing and enforcing contracts are higher:
a) in countries with poorly-enforced property rights.
(cost of making the deal)
b)
...
Final Exam Practice Questions
Econ 651
Dr. John Horowitz
1) The transactions costs of writing and enforcing contracts are higher:
a) in countries with poorly-enforced property rights.
(cost of making the deal)
b) in countries with strongly-enforced property rights.
c) in all counties with good court systems.
d) in countries without political risks of property confiscation.
2) Informational deficits of producers or consumers, plus problems of externalities,
can:
a) cause market failure.
b) always be solved by alternative dispute resolution (ADR).
c) improve free trade.
d) restrict the use of property rights in a market economy.
3) Many people believe that the supply and demand for regulation will result in the
most powerful coalition group controlling the regulatory body. That powerful
group is often made up of the companies that are supposed to be regulated. This
theory is called:
a) the capture theory.
(from chpt on theory of regulation-example, high rail road rates
start the interstate commerce commission.
b) adverse selection theory.
(look up insurance and adverse selection)
c) the law of demand.
d) market failure theory.
4) In a regulatory environment, the number of regulated companies is small and the
payoff to successful lobbying is large, and:
a) the number of consumers is also small, but their payoff to success is also
small for each person.
b) the number of consumers is large, and the payoff to success is small for
each person.
(example: Milk producers: a few milk producers go to lobby for higher
milk prices. OR Electric companies wanting higher electric rates.
c) the number of regulators is small and corrupt.
d) the supply of regulation is usually tied to another industry’s success.
5) J.L. Pratt noted of the old General Motors that, “When one of them had a project,
why he would get the vote of his fellow members, if they would vote for his
project, he would vote for theirs.” This is called:
a) logrolling.
[n] act of exchanging favors for mutual gain; especially trading of
influence or votes among legislators to gain passage of certain
projects
b) hypertension.
c) a violation of antitrust law.
d) proposal marketing.
6) When a corporation participates in more than one successive stage in a multistage production process it is said to be:
a) vertically integrated.
(production, distribution)
b) completely outsourced.
c) engaged in preliminary contracts.
d) functionally organized.
7) While firms buy many of their inputs through the open market, there is often a
desire to produce critical inputs. A common concern in producing an input
yourself (internally) is that:
a) the firm will find it too easy to manage quality.
b) the firm will not minimize costs at a high enough level of output.
c) outside competitors will learn about your inputs.
d) your firm will get prompt supply of the input.
8) Markets are usually preferred by economists for efficient transactions. However,
Ronald Coase noted that administrative solutions may be superior because market
transactions are:
a) never at the equilibrium price.
b) not costless
(Is the reason we have firms. ).
c) always result in a price that clears the market.
d) hindered by technological change.
9) Specific assets can create problems for a company. If a supplier invests in new
machinery to deliver a part useful only to its biggest and best customer, it can find
itself with:
a) a low cost delivery output.
b) a holdup problem.
(Once the firm has incurred the cost, customer could come back and
demand a lower price)
c) significant externalities.
d) an outsourcing dilemma.
CONTINUES...
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