1.(1) Market failure

O Occurs whenever the government intervenes in the market mechanism. O Occurs whenever the government pursues laissez-faire policies. O Occurs whenever an imperfection in the market mechanism prevents optimal outcomes. O Never occurs.

2. (1) The best way to address a natural monopoly without dismantling the economies of scale is

O Laissez faire. O Antitrust. O Deregulation. O Regulation

3.(1) The long-run average total cost curve of a natural monopolist

O Is downward-sloping in the relevant range of production. O Is U-shaped. O Reflects diseconomies of scale. O Is below the long-run marginal cost curve in the relevant range of production.

4.(1) All of the following are examples of natural monopolies except

O Local telephone companies.

Electricity companies. O College bookstores. O Railroad companies.

5.(1) A natural monopoly

O Has low barriers to entry.

Has high marginal costs. O Charges a lower price than a competitive firm. O Will charge high prices if unregulated.

6.()) What is meant by price efficiency?

O Price is greater than marginal cost. O Price is equal to marginal cost. O Price is equal to average total cost. O Price is greater than average total cost.

7.(1) If a natural monopoly is forced to set a price consistent with price efficiency, it will

Set price above marginal cost. O Earn a profit on every unit of output produced.

O Set price equal to the ATC of production. O Incur a loss on every unit of output produced.

8.(1) A natural monopoly can purposely increase its cost of production by

Using its own unregulated subsidiary to inflate its cost. O Substituting cheaper inputs. O Keeping marginal costs low. OUsing government subsidies to offset losses.

9.(1) Suppose the quality of service provided by a newly regulated firm begins to deteriorate soon after regulation is enforced. Which of the following types of regulation is most likely being used?

O Price regulation. O Profit regulation. O Output regulation. O Social regulation.

10.17)Output regulation forces the natural monopolist to produce at an output

O That perfectly competitive firms would choose.

Where MR = MC. O Greater than its profit-maximizing choice. O Where MR equals zero.

11.(7)If government failure did not exist,

Laissez faire would apply to all markets. Deregulation would be unnecessary.

The invisible hand would be the most efficient and equitable way to run the economy. O All markets would be regulated.

12. (1)Hiring over 260,000 U.S. federal workers to oversee and operate regulatory agencies involves

O Zero costs since the market outcomes will be improved. O Government failure in every case.

Forgoing output that could be produced if the workers were employed elsewhere. O Some opportunity costs only if market outcomes do not improve.

13.(1 The first major regulatory target in the United States was

Airlines.

Railroads. O Trucking firms.

Telephone companies.

14.(1)The collapse of ATamp;T's natural monopoly in long-distance telephone service was caused by

Satellite technology that made it easier and less expensive for new companies to provide long distance service. The takeover of the telephone industry by the U.S. government.

O Government regulation because of illegal collusion between ATamp;T and foreign

competitors. O Inadequate profits.

15.47 )If entry barriers into a monopolized market are kept low,

O Market power increases. O A market is contestable. O Government failure exists. O A duopoly will be created.

16. (1 Proponents of electric utility industry deregulation argue that

O Profit regulation resulted in increased costs and higher prices. O Profit regulation resulted in too much investment in highly efficient energy production. O Profit regulation resulted in industry output that was too great. O Regulation of electricity producers favored industrial electricity users.

17.(1) Assigning values to environmental damage is relatively

Easy because of current scientific techniques.

Easy because all items have a market value. O Difficult because many items have intangible benefits and thus do not have a market price.

Easy because the government has the legislative authority to assign prices.

18.(1)The reason pollution occurs is because people tend to

O Consider the impact of their activities on society first.

Maximize their personal welfare, balancing private benefits against private costs.

Maximize their personal welfare, balancing social benefits against social costs. O Maximize society's welfare, balancing private benefits against private costs.

19.(7)If firms were charged the full social opportunity cost of the resources they used, there would be

O No external costs. O Government failure. O Market failure. O A need for government intervention.

20.(1)Which of the following is not a market incentive to discourage pollution?

O Emission charges. O Higher user fees. O Regulatory intervention. O Green taxes.

21.(1)A polluting company can be billed in proportion to its pollution through

O Higher user fees. O Emission charges.

Privatization.

O Tradable pollution permits.

22. (1)An emission charge is

O A subsidy to the consumers who are hurt by pollution. O A charge on consumers who buy goods made by firms that pollute. O An attempt to change consumers' behavior by direct government intervention. O A fee imposed on polluters based on the quantity of pollution they generate.

23.(1)An emission charge

Reduces private marginal cost and reduces output. O Reduces private marginal cost and increases output. O Increases private marginal cost and reduces output. O Increases private marginal cost and increases output.

24.(1)The primary purpose of tradable pollution permits is to

O Increase the level of pollution to optimal levels. O Reduce the cost of pollution control. O Eliminate private costs. O Completely eliminate pollution.

25.(1)The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 reduced

pollution through

O Central planning. O Command-and-control regulatory standards. O Pollution fines. O Emission charges.

26.(1)The command-and-control strategy for pollution reduction refers to

O The use of pollution fines to change the costs of polluting. O A requirement specifying the level of pollution and the process to reduce pollution. O The use of tradable permits. O Gradual development of standards through close monitoring of environmental changes.

27.(1)The optimal rate of pollution occurs where

O MR = MC for the production of the good that produces pollution. O The marginal benefit equals the marginal cost of pollution abatement. O The marginal benefit of pollution abatement is zero. O Pollution is reduced to zero.