Business Law Principles For Today's Commercial Environment 3rd Edition by David P. Twomey - Test Bank

Business Law Principles For Today’s Commercial Environment 3rd Edition by David P. Twomey – Test Bank

 

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Sample Questions Are Posted Below

 

Chapter 5—GOVERNMENT REGULATION OF COMPETITION AND PRICES

 

TRUE/FALSE

 

1. The government can regulate not just businesses, but also business competition and prices.

 

ANS:  T                    MSC:  AACSB Analytic

 

2. State governments may regulate business in all of its aspects, even if such regulation imposes a burden on interstate commerce.

 

ANS:  F                    MSC:  AACSB Analytic

 

3. The federal government may regulate any area of business to advance the nation’s economic needs.

 

ANS:  T                    MSC:  AACSB Analytic

 

4. The government may prohibit false advertising and labeling, but may not establish standards for ordinary things like cosmetics because they pose no danger to the public.

 

ANS:  F                    MSC:  AACSB Analytic

 

5. The federal government may regulate all methods of intrastate transportation and communication.

 

ANS:  F                    MSC:  AACSB Analytic

 

6. The government may require licenses to be able to deal in certain goods, and these licenses may be revoked for improper conduct or violations of statutes and regulations.

 

ANS:  T                    MSC:  AACSB Analytic

 

7. Governments may own factories and may compete with privately-owned businesses.

 

ANS:  T                    MSC:  AACSB Analytic

 

8. Each of the states and the federal government have statutes and regulations that prohibit unfair methods of competition.

 

ANS:  T                    MSC:  AACSB Analytic

 

9. The Federal Trade Commission administers the law prohibiting unfair methods of competition.

 

ANS:  T                    MSC:  AACSB Analytic

 

10. The Federal Trade Commission has taken enforcement steps against refusals to sell, boycotts, market restrictions, disparagement of competitors’ products, and unlawful methods of billing and collection.

 

ANS:  T                    MSC:  AACSB Analytic

 

11. The government may regulate production but not prices.

 

ANS:  F                    MSC:  AACSB Analytic

 

12. The Clayton Act prohibits price discrimination between different buyers of like commodities when the effect may be to substantially lessen competition.

 

ANS:  T                    MSC:  AACSB Analytic

 

13. A manufacturer with distributors in New York City may give its newer distributors free advertising and other services to help them compete with the distributors who have been doing business for a number of years and have become firmly established.

 

ANS:  F                    MSC:  AACSB Analytic

 

14. A state may prohibit a seller from selling below cost if the purpose is to harm competitors.

 

ANS:  T                    MSC:  AACSB Analytic

 

15. A price reduction to one customer is lawful when it is made because of the deteriorated condition of the goods sold to that customer.

 

ANS:  T                    MSC:  AACSB Analytic

 

16. The Robinson-Patman Act of 1936 guarantees a seller the right to refuse to deal with anyone for any reason or purpose.

 

ANS:  F                    MSC:  AACSB Analytic

 

17. It is a federal offense for a manufacturer to require a distributor to maintain a specified price on reselling to retailers.

 

ANS:  T                    MSC:  AACSB Analytic

 

18. Price discrimination is not permitted even when it can be justified on the basis of a difference in grade, quality, or quantity.

 

ANS:  F                    MSC:  AACSB Analytic

 

19. The Sherman Act provides that every contract in restraint of trade is illegal.

 

ANS:  T                    MSC:  AACSB Analytic

 

20. A divestiture order is a decree ordering a defendant to dispose of excessive ownership or control of interests in competing enterprises.

 

ANS:  T                    MSC:  AACSB Analytic

 

21. When large-size enterprises plan to merge, they must give written notice to the Interstate Commerce Commission.

 

ANS:  F                    MSC:  AACSB Analytic

 

22. The United States Supreme Court generally has held that an agreement creating the power to monopolize interstate commerce should not automatically be condemned as an unlawful restraint of interstate commerce.

 

ANS:  T                    MSC:  AACSB Analytic

 

23. Criminal penalties are possible under the Sherman Act.

 

ANS:  T                    MSC:  AACSB Analytic

 

24. A person who is harmed by a conspiracy that violates the Sherman Antitrust Act may sue the wrongdoers for four times the actual damages.

 

ANS:  F                    MSC:  AACSB Analytic

 

25. The attorney general of a state may bring a class action suit to recover damages for those injured by an antitrust violation which raised prices.

 

ANS:  T                    MSC:  AACSB Analytic

 

MULTIPLE CHOICE

 

1. The federal government may impose regulations on business:

a.	by virtue of its police power.
b.	to advance the interests of homeland security.
c.	to advance the nation’s economic needs.
d.	if those regulations do not impose an unreasonable burden on interstate commerce.

 

 

ANS:  C                    MSC:  AACSB Analytic

 

2. Under the commerce power, the federal government may regulate:

a.	some interstate commerce only.
b.	all interstate commerce.
c.	some intrastate commerce only.
d.	all intrastate commerce.

 

 

ANS:  B                    MSC:  AACSB Analytic

 

3. Government may:

a.	prohibit false advertising and labeling.
b.	enforce standards for health and purity for cosmetics, foods, and drugs.
c.	engage in competition with private enterprise or own and operate an industry.
d.	all of the above.

 

 

ANS:  D                    MSC:  AACSB Analytic

 

4. Unfair competition is controlled by:

a.	statutes.
b.	administrative agencies.
c.	administrative regulations.
d.	all of the above.

 

 

ANS:  D                    MSC:  AACSB Analytic

 

5. The FTC Act prohibits:

a.	price fixing.
b.	labor unions.
c.	unfair methods of competition.
d.	price discrimination.

 

 

ANS:  C                    MSC:  AACSB Analytic

 

6. The Clayton Act prohibits:

a.	all unfair methods of competition.
b.	conspiracies in restraint of trade.
c.	attempts to monopolize.
d.	price discrimination between buyers of like commodities.

 

 

ANS:  D                    MSC:  AACSB Analytic

 

7. The Sherman Act focuses on:

a.	unfair methods of competition.
b.	combinations or contracts in restraint of trade.
c.	permitted price discriminations.
d.	intrastate commerce.

 

 

ANS:  B                    MSC:  AACSB Analytic

 

8. __________ power relates to a firm’s ability to control price and exclude competitors.

a.	Marketing
b.	Market
c.	Product
d.	Production

 

 

ANS:  B                    MSC:  AACSB Analytic

 

9. Section __________ of the Sherman Act applies to agreements, conduct, or conspiracies to restrain trade, which can consist of price-fixing, typing, and monopolization.

a.	A
b.	B
c.	1
d.	2

 

 

ANS:  C                    MSC:  AACSB Analytic

 

10. The Sherman Act applies to:

a.	buying activities.
b.	selling activities.
c.	production activities.
d.	all of the above.

 

 

ANS:  D                    MSC:  AACSB Analytic

 

11. The Sherman Antitrust Act does not prohibit:

a.	a manufacturer from having a natural monopoly over its own product.
b.	a seller to dominate a market because of superior product or business.
c.	a manufacturer to sell only through a particular distributor.
d.	all of the above.

 

 

ANS:  D                    MSC:  AACSB Analytic

 

12. Under the Clayton Act, a divestiture order is:

a.	notification from the Department of Justice that a merger is about to occur.
b.	notification from the Department of Justice that a merger did not occur.
c.	a decision by a court requiring a defendant to sell an enterprise.
d.	an order by a court requiring an enterprise to dispose of its inventory.

 

 

ANS:  C                    MSC:  AACSB Analytic

 

13. Under the Clayton Act, when large-scale enterprises plan to merge, they must in advance:

a.	notify the New York Stock Exchange.
b.	notify the President of the United States.
c.	complete the necessary financing arrangements.
d.	notify the Antitrust Division of the Department of Justice.

 

 

ANS:  D                    MSC:  AACSB Analytic

 

14. __________ laws seek to guard against unfairness in corporate takeover situations.

a.	Interceder
b.	Invader
c.	Raider
d.	Takeover

 

 

ANS:  D                    MSC:  AACSB Analytic

 

15. In order to show a per se violation of the Sherman Act, plaintiff must demonstrate:

a.	a substantial potential for impact on competition.
b.	actual or likely impact on a market.
c.	any agreement tending to fix prices.
d.	none of the above.

 

 

ANS:  D                    MSC:  AACSB Analytic

 

16. What types of restraints of trade are unlawful?

a.	Voluntary
b.	Binding
c.	Unreasonable.
d.	Interbrand.

 

 

ANS:  C                    MSC:  AACSB Analytic

 

17. A violator of the Sherman Act may be subject to:

a.	fine only.
b.	imprisonment only.
c.	fine, imprisonment, and injunction.
d.	fine and imprisonment only.

 

 

ANS:  C                    MSC:  AACSB Analytic

 

18. For violation of the Sherman Act, the maximum fine that may be imposed on a natural person is:

a.	$1 million.
b.	$350,000.
c.	$0.
d.	$1 billion.

 

 

ANS:  A                    MSC:  AACSB Analytic

 

19. A person or enterprise harmed by a Sherman Act violation may bring an action for:

a.	punitive damages only.
b.	treble damages.
c.	quadruple damages.
d.	actual damages only.

 

 

ANS:  B                    MSC:  AACSB Analytic

 

20. When the effect of an antitrust violation is to raise prices:

a.	damages are automatically considered doubled.
b.	each plaintiff must sue individually.
c.	imprisonment for the guilty is mandatory.
d.	the state attorney general may bring a class action suit for damages.

 

 

ANS:  D                    MSC:  AACSB Analytic

 

CASE

 

1. Alfred, an enterprising college senior, had been involved in the selling of goods for a number of years at flea markets. Alfred supported himself in this way but yearned for greater success. He was particularly interested in selling men’s clothing. He studied the clothing lines of famous designers Giorgio Armani and Bill Blass. Alfred then contacted a clothing manufacturer who agreed to copy the styles under the names of Armani and Blass. Alfred began to sell the copied clothing articles under the names “Gorgo Ormani” and “Bill Bless.” The names, however, were not clearly printed on the labels but written in a handwritten scrawl making it difficult to discern the actual spelling. The matter has been brought to the attention of the FTC. Discuss possible violations of the FTC Act.

 

ANS:

Alfred’s actions are unfair methods of competition and violate the FTC Act. These actions-deceptively passing one’s goods off as those designed by famous designers-is unfair both to the designers and to the consumers who are getting less than the value they have paid for.

 

MSC:  AACSB Reflective Thinking | AACSB Analytic

 

2. The Freezo Refrigeration Company entered into agreements with retail store owners. The agreements provided that the store owners would not sell Freezo’s refrigerators below Freezo’s suggested minimum retail price and that, in return, Freezo would not sell its refrigerators at retail in the store owners’ respective territories. Are these agreements valid?

 

ANS:

No. Agreements fixing prices either horizontally or vertically violate the Sherman Antitrust Act and are illegal. This case is an example of vertical price fixing. Both Freezo and the retail store owners with whom it contracted can be punished by fine or imprisonment or both.

 

MSC:  AACSB Reflective Thinking | AACSB Analytic

 

3. Quickness Computer, Inc. was a manufacturer of computers. A Hollywood star indicated on national television that Quickness was his favorite computer. Buoyed by this comment, sales of Quickness computers surged. Since demand outpaced supply, Quickness decided to sell no more computers unless an accompanying software package was purchased. A competitor informed the Office of the Attorney General of this policy, asserting it was illegal. Decide.

 

ANS:

It is a violation of law to force purchasers to buy items they do not want in order to buy items that they do want. This is called a tying arrangement or a tying sale. Quickness would appear to be in violation of the antitrust laws.

 

MSC:  AACSB Reflective Thinking | AACSB Analytic