Law and Economics
Question Bank
Course Introduction
Law and Economics explores the intersection between legal frameworks and economic principles, analyzing how laws influence economic outcomes and how economic theory can inform the creation and interpretation of laws. This course examines key judicial concepts such as property rights, contracts, torts, and liability from an economic perspective, focusing on efficiency, incentives, and market impact. Through case studies and theoretical models, students learn to assess legal policies, understand regulatory effects, and evaluate the consequences of legal decisions on individuals and society. The course equips students with analytical tools to critically approach legal issues through the lens of microeconomic analysis.
Recommended Textbook
Transactions and Strategies 1st Edition by Robert
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1179 Verified Questions
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J. Michaels
Chapter 1: Reasoning With Economics: Models and Information
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75 Verified Questions
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Sample Questions
Q1) _____ have the ability to recognize constraints and may choose to incur the costs of altering them.
A)Economists
B)Rational people
C)Entrepreneurs
D)Research groups
Answer: B
Q2) Economists use the phrase, "dollar bills left on the sidewalk" for describing systematically missed opportunities.
A)True
B)False Answer: True
Q3) Which of the following can act as a substitute for information?
A)Social networking
B)Knowledge gathered through past experience
C)Ability to postpone a choice
D)Forecasts and predictions
Answer: C
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Chapter 2: Transactions and Institutions: the Building
Blocks
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80 Flashcards
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Sample Questions
Q1) If the production of 2,000 cars and 500 tons of corn during a year is economically efficient for a country which produces only these two products, which of the following conclusions can be drawn?
A)It satisfies domestic demand completely.
B)The production of cars can not be increased without reducing the production of corn.
C)The reallocation of resources to change the production level must reduce production of both goods.
D)It is possible to increase the production of both if resources can be reallocated.
Answer: B
Q2) In a two-person economy, Adam and Brandon both produce corn and cars.Adam's marginal cost of producing a car is 50 tons of corn, while Brandon's marginal cost is 70 tons of corn.In this economy, Brandon should produce cars and Adam should produce corn.
A)True
B)False
Answer: False
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4
Chapter 3: Markets
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Sample Questions
Q1) A perfectly elastic demand curve will:
A)be a vertical straight line.
B)be a downward sloping straight line.
C)be a horizontal straight line.
D)be an upward sloping straight line.
Answer: C
Q2) What is the Law of One Price?
Answer: Buying and selling a good simultaneously in two different venues, referred to as arbitrage, unifies a market and brings about a single equilibrium price or price differences that just cover the cost of transacting.This tendency is called the Law of One Price.
Q3) What is the difference between the cross-elasticity of demand for two goods which are substitutes and two goods which are complements?
Answer: If the goods are substitutes, the cross-elasticity of demand is positive, and if they are complements the cross elasticity of demand is negative.
Q4) What is the income elasticity of demand for an inferior good?
Answer: The income elasticity of demand for an inferior good is always negative.
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Chapter 4: Cost and Production
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Sample Questions
Q1) The cheapest way to produce a certain amount of output may vary between the short and long-run because:
A)all inputs can be adjusted in the long run.
B)all inputs can be adjusted in the short run.
C)input prices are fixed in the short run.
D)prices increase over the long-run.
Q2) The profit-maximizing rule of production is to produce the level of output where price is equal to marginal cost.Since the marginal cost (MC) curve is U-shaped, the price line running horizontal to the X-axis intersects the MC curve at two points.How is the profit maximization rule applied in this case?
Q3) The downward-sloping portion of the marginal cost curve is the only portion that matters in production.
A)True
B)False
Q4) The introduction of new technology and changes in organization are:
A)likely to shift the LRAC curve.
B)unlikely to help in the short-run.
C)likely to shift the SRAC upward.
D)unlikely to affect a firm's cost curves in the long-run.
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Chapter 5: Extreme Markets I: Perfect Competition
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Sample Questions
Q1) State two characteristics of the long-run equilibrium under perfect competition.
Q2) Refer to Table .Suppose initially 3,200 units are demanded at a price of $3 per unit.What will be the quantity of output supplied by each type of firm in the market?
A)Type A and Type B will jointly supply 3,000 units while Type C will supply 200 units.
B)Type A firms will supply 3,000 units, while the remaining 200 units will be supplied by Type B.
C)Type A firms will supply the entire 3,200 units, while Type B and Type C firms will not enter the market.
D)Type A and Type B will each supply 1,600 units, Type C will not enter the market.
Q3) Economists consider the model of perfect competition useful because:
A)it is a standard for analyzing producer and consumer benefits.
B)its assumptions exactly fit into actual conditions in some markets.
C)its assumptions can be easily replaced with realistic ones.
D)it is a standard for analyzing consumer choices.
Q4) Was the U.S.government able to control the world petroleum prices? Support your choice with suitable reasons.
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Chapter 6: Extreme Markets II: Monopoly
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Sample Questions
Q1) Why does rent-seeking behavior lead to deadweight loss?
Q2) The demand curve faced by a perfectly competitive firm is:
A)downward sloping.
B)the same as the market demand curve.
C)horizontal.
D)perfectly inelastic.
Q3) Refer to Figure .What is the maximum cover charge that can be levied on consumers whose demand curve is D ?
A)$28
B)$16
C)$32
D)$14
Q4) The peak of the total revenue curve is achieved at the point where:
A)marginal revenue is the highest.
B)price is the highest.
C)marginal revenue is zero.
D)marginal cost is zero.
Q5) What is tying or bundling of goods?
Q6) How does a monopolist choose the profit maximizing output-price combination?
Q7) Identify some of the basic assumptions of monopoly.
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Chapter 7: Between the Extremes: Interaction and Strategy
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Sample Questions
Q1) Which of the following games will have a solution in mixed strategies?
A)A price-fixing game
B)A Prisoner's dilemma
C)A drafting game used by racing cars.
D)A product choice game with asymmetric profits
Q2) When can a grim trigger prevent oligopolists from breaking an agreement?
Q3) After the deregulation of the airline industry, the new airlines had a competitive cost advantage over the older ones as:
A)they could practice price discrimination.
B)they did not bear any legacy cost.
C)they enjoyed economies of scale.
D)they had to pay lower fuel surcharge.
Q4) In a mixed strategy situation, a player does best by unpredictably mixing his strategies in accordance with probabilities that depend on the strategies of the others.
A)True
B)False
Q5) In a game, which strategic choice is called a dominant strategy?
Q6) When is a game dominance solvable?
Q7) How is the dominant firm's residual demand curve derived in an oligopoly market?
Page 9
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Chapter 8: Competition and Strategy
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Sample Questions
Q1) Refer to Figure .Suppose some of the preexisting firms adopt the cost effective technology of the innovator while non-adopters that are incurring losses shut down.The high cost sellers produce the rest of the market output.What will happen to the equilibrium price level?
A)The price level will fall below P0 but remain positive.
B)The price level will remain at P0.
C)The price level will rise above P0.
D)The price level will fall to zero.
Q2) What are the benefits of a franchise contract?
Q3) Explain the difference between the per se and "rule of reason" standards of the antitrust laws
Q4) Explain the functioning and significance of vertical agreements.Use specific examples from the apparel and textile markets.
Q5) Investment in a new facility is likely to increase the annual profit of a fertilizer producer by $85.The producer will purchase the facility only if it requires an annual investment of $90.
A)True
B)False
Q6) How is economic value created during transactions between buyers and sellers?
Page 10
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Chapter 9: Beyond Markets; Property and Contracts
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Sample Questions
Q1) Refer to Table.What will be the payoff to each producer in the absence of a unitization contract?
A)Each producer will earn $10
B)Frasel will earn $6 while Mike will earn $16
C)Frasel will earn $16 while Mike will earn $6
D)Each of the well owners will earn $14
Q2) Farmers can avoid the free rider problem associated with the benefits received from beekeepers by:
A)forming local associations who contract with beekeepers.
B)excluding non payers from using the services provided by beekeepers.
C)fixing a low charge for the service provided by beekeepers.
D)contracting with selective beekeepers and giving them a share of farm output.
Q3) According to economists, an individual who tries to derive utility from the consumption of a good without paying for it is called:
A)a utility maximizer.
B)a free rider.
C)an opportunist.
D)a profit maximizer.
Q4) Define a contract and explain with examples.
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Chapter 10: The Economics of Contracts
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Sample Questions
Q1) Refer to Table .Under expectation damages, Mike's breach would entitle Frasel to:
A)a $10 payment from him.
B)a $16 payment from him.
C)a $8 payment from him.
D)a $6 payment from him.
Q2) Which of the following is true of opportunism?
A)Opportunism increases the possibility that a party can gain by disregarding the contract.
B)Opportunism lowers the cost of negotiation between parties when the contract is incomplete or unclear.
C)Opportunism allows parties to maximize the value of their transactions.
D)Opportunism leads to mutually beneficial outcomes.
Q3) Which of the following is a legal remedy for a breach of the contract between parties?
A)Liquidated damages
B)Imprisonment
C)Unitization
D)Specificity
Q4) When should parties be allowed to breach a contract?
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Chapter 11: Risk and Information in Contracts
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Sample Questions
Q1) Which of the following risks will always be insured in a business?
A)Bad debts recorded in the company accounts
B)Vital inputs required for daily production
C)High-end technology based products
D)Inventory stocked up in the storehouses.
Q2) The parties to a contract will choose to acquire possibly duplicative information if they believe that the increase in economic value being created will exceed the cost of discovering the information.
A)True
B)False
Q3) An individual will be considered risk neutral if:
A)he is indifferent between taking and not taking up the gamble.
B)he pays someone to take away the gamble from him.
C)he pays someone to allow him to take the gamble.
D)he takes up the gamble under any situation.
Q4) Asymmetric information increases the economic value that an agreement between two parties creates.
A)True
B)False
Q5) When does an insurance contract benefit both the parties?
Page 13
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Chapter 12: Organizations in Concept and Practice
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Sample Questions
Q1) Independent workers using specialized capital save the costs of contracting but risk: A)generalization.
B)opportunism.
C)inefficiency.
D)over-utilization.
Q2) If the owners of different types of resources, which are combined to produce an output, agree on organizational relationships that define their responsibilities toward one another they have formed a _____.
A)group
B)company
C)distribution network
D)team
Q3) Why is it necessary to separate the management function in an organization from those of finance and residual claimancy?
Q4) Risk-averse people prefer to hold assets whose returns are positively correlated.
A)True
B)False
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Chapter 13: Organizational Design
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Sample Questions
Q1) Joanne can choose to selectively disclose information to her superiors in an attempt to elicit decisions in her favor if:
A)the information is easily available to all.
B)she is the only source of the information concerned.
C)the information is easily verifiable.
D)there are other sources of the same information in the firm.
Q2) Identify the statement which is true of the organization depicted in this figure?
A)There is a strong linkage between the individuals represented in the chart.
B)It is a sole proprietorship firm.
C)The above organization chart depicts a U-form firm.
D)Team production is unimportant in this organization.
Q3) British manufacturers lost their competitive edge in the early twentieth century to industries in the United States and elsewhere in Europe mainly because they failed to reorganize their operations to take full advantage of their inventions.
A)True
B)False
Q4) How does a self-contained unit benefit a firm?
Q5) What is an organization chart?
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Chapter 14: Vertical Relationships
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Sample Questions
Q1) Which of the following statistics confirm the rise in de-integration in the U.S.post 1970s?
A)The average number of industrial sectors a firm operated in increased substantially in 1997.
B)Employment in the business services industry that supplied contract employees grew by almost five times as much as non-farm employment.
C)Between 1977 and 1999, imports of the U.S.firms from foreign affiliates as a percentage of total imports increased substantially.
D)Between 1977 and 1999, imports of the U.S.firms from unrelated suppliers as a percentage of total imports declined.
Q2) A thin market usually does not allow the use of futures contracts or other hedging tools.
A)True B)False
Q3) Explain why the production and milling of hot steel has a high volumetric interdependence?
Q4) When are businesses likely to outsource some of their activities?
Q5) Does U.S.Steel prefer to own coal mines? Give reason for your answer.
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Chapter 15: Employment Relationships
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Sample Questions
Q1) An employee who has worked with only one organization all her life, and is now close to her retirement age, is unlikely to find an equally profitable position with another company because:
A)her productivity is very low.
B)her firm-specific capital is of little use to other organizations.
C)other organizations can not verify her previous work record.
D)her preference for leisure is likely to be very high.
Q2) Identify the correct statement from the following.
A)A worker's wage line and productivity line over his lifetime are parallel to each other.
B)The wage line of a worker's lifespan is an upward sloping straight line.
C)The productivity line of a worker's lifespan rises at a decreasing rate.
D)A worker's wage is always equal to his productivity.
Q3) Assume that a firm is operating in the short run and all resources are fixed except for labor.The total product curve for this firm will increase at a decreasing rate because:
A)value of marginal product of labor is unchanged as more labor is hired.
B)marginal product of labor will decline as more labor is hired.
C)value of marginal product of labor will increase as more labor is hired.
D)marginal product of labor is unchanged as more labor is hired.
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Chapter 16: Time, Risk and Options
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Sample Questions
Q1) The longer the annuity on a sum of money the lower will be its present value.
A)True
B)False
Q2) Suppose a six-sided dice is rolled twice.The probability of getting a five during the second roll will depend on the outcome of the first roll.
A)True
B)False
Q3) If events A and B are independent, then Pr[A and B] will be:
A)Pr[A]÷Pr[B].
B)Pr[A]-Pr[B].
C)Pr[A]+Pr[B].
D)Pr[A]×Pr[B].
Q4) How is the writer of an option affected by changes in its stock price?
Q5) Two events A and B in a sample space are considered _____ if the probability that A will happen is the same regardless of whether or not B has happened.
A)conditional
B)correlated
C)independent
D)exclusive
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Chapter 17: Conflict, Negotiation and Group Choice
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Sample Questions
Q1) The differences that people settle by voting are most likely to include:
A)issues that affect few people.
B)decisions that need to be taken at a short notice.
C)decisions that are divisible.
D)public goods.
Q2) The difference between the buyer's opportunity cost and the seller's valuation defines the zone of agreement in which the agreement will benefit both parties.
A)True
B)False
Q3) A lawyer's ability to understand a client's legal situation and his professional norms may improve the outcome of a negotiation with another attorney, relative to the outcome if the client bargained for herself.
A)True
B)False
Q4) A good which is nonexcludable and nonrival is called:
A)a public good.
B)a marketable good.
C)a private good.
D)a consumer good.
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