Introducing Regulation: Self Assessment

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1. According to Doyle C (1997) Self Regulation and Statutory Regulation, Business Strategy Review, Vol.8, 3, pps 35-42, self regulation is likely to be the dominant regulatory structure in industries that have (Hint: there are 4 correct answers)

a) well defined goods and services
b) firms with simple hierarchies
c) private information
d) complex hierarchies and perhaps geographical dispersion
e) vigorous competition
f) information in the public domain

2. According to Doyle C (1997) Self Regulation and Statutory Regulation, Business Strategy Review, Vol.8, 3, pps 35-42, statutory regulation is likely to be the dominant regulatory structure in industries that have (Hint: there are 2 correct answers)

a) well defined goods and services
b) firms with simple hierarchies
c) private information
d) complex hierarchies and perhaps geographical dispersion
e) vigorous competition
f) information in the public domain

3 Which of the following describes adverse selection?

a) A process by which individuals have substantial resources devoted to the exchange process and need to make a profit or they will be adversely affected.
b) A post-contractual problem that may result because participants to the exchange process have information that allows them to act in an opportunistic manner.
c) A process by which an undesirable population of buyers or sellers with an information bias are more likely to participate in voluntary exchange.
d) A contractual problem that results because of cartel like behaviour by one or other of participants to the exchange.

4 Which of the following describes moral hazard selection?

a) A process by which individuals have substantial resources devoted to the exchange process and need to make a profit or they will be adversely affected.
b) A post-contractual problem that may result because participants to the exchange process have information that allows them to act in an opportunistic manner.
c) A process by which an undesirable population of buyers or sellers with an information bias are more likely to participate in voluntary exchange.
d) A contractual problem that results because of cartel like behaviour by one or other of participants to the exchange.

5. Assume that in a population of plumbers 85% produce high quality work and 15% poor quality work. The costs (including a normal profit to the plumber) for a 'standard job' are £20 for the high quality plumber and £10 for the poor quality plumber. This also represents the maximum and minimum willingness to pay for a customer. So what is the average willingness to pay?

a) £16.50
b) £17.50
c) £18.50
d) £19.50

6. The plumbers set up their own institute to signal high quality and screen membership by using a practical test. Now assume that 95% of the high quality plumbers pass the practical test and 12% of the poor quality plumbers are successful in joining. What is the probability of a high quality plumber not being a member of the Institute?

a) 0.978
b) 0.324
c) 0.244
d) 0.846

7. If the cost of joining the Institute is £1 per standard job will the high quality plumbers find it worthwhile joining?

Yes
No

8. The situation where a regulator allows powerful regulated parties to gain precedence over the wider public interest is known as .....