Knowledge Check

1. What do economists mean when they say there is “market failure”? Business has introduced a product that consumers did not want. Free markets have led to excessive profits.
Markets have surpluses or shortages so that government rationing is necessary. Free markets yield results that economists do not consider socially optimal.

2.If a market has no externalities, marginal private costs
exceed marginal social costs
equal marginal social costs
are below marginal social costs
intersect marginal social costs

3.Economists generally call the effect of an agreement on others that is not taken into account by the parties making the agreement an externality
welfare loss
Pareto optimality
excess burden

4.The size performance improvements sought by those pursuing horizontal mergers is economies of scale
increased market share
to coordinate activities more efficiently to spur growth
to decrease competition

5.A company buys another company in the same supply chain, but either in front of it or behind it in the supply chain. This is called a horizontal acquisition
a vertical acquisition
a conglomerate
a joint venture

6.Sony and Toshiba become partners in a microprocessor manufacturing company. This is called a horizontal acquisition
a vertical acquisition
a conglomerate
a joint venture

7.If two companies share ownership in a venture and agree on a formal management structure including members of both companies,this is called a horizontal acquisition
vertical acquisition
joint venture
conglomerate

8.Two companies come together to take on a project that has an explicit time cycle and ending point. The most efficient form of acquisition of this project is a horizontal acquisition
a joint venture
a vertical acquisition
a conglomerate

9.The more elastic the supply and the demand curves are,
the smaller the shortage a price ceiling will create
greater the shortage a price ceiling will create
smaller the surplus a price ceiling will create
greater the surplus a price ceiling will create

10.Assuming a binding price floor, the more elastic the supply and demand curves are, the smaller the shortage a price floor will create
greater the shortage a price floor will create
smaller the surplus a price floor will create
greater the surplus a price floor will create