Business Law Principles for Today's Commercial Environment 4th Edition by David P. Twomey - Test Bank

Business Law Principles for Today’s Commercial Environment 4th 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. Governments may regulate prices but not credit terms.

 

ANS:  F                    MSC:  AACSB Analytic

 

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

 

ANS:  T                    MSC:  AACSB Analytic

 

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

 

ANS:  T                    MSC:  AACSB Analytic

 

 

 

 

7. An agreement between real estate brokers to never charge a commission less than 6% is not an example of price fixing.

 

ANS:  F                    MSC:  AACSB Analytic

 

 

 

 

8. The Sherman Act applies only to buying and selling activities, not manufacturing and production activities.

 

ANS:  F                    MSC:  AACSB Analytic

 

9. Having a large percentage of the market is not necessarily a monopoly.

 

ANS:  T                    MSC:  AACSB Analytic

 

 

10. Boycotts are always illegal, even when done with good intentions.

 

ANS:  T                    MSC:  AACSB Analytic

 

11. Under the Sherman Act competitors are permitted to agree not to deal with certain buyers.

 

ANS:  F                    MSC:  AACSB Analytic

 

12. 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

 

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

 

ANS:  F                    MSC:  AACSB Analytic

 

14. 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

 

15. 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

 

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

 

ANS:  T                    MSC:  AACSB Analytic

 

17. 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

 

 

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

 

ANS:  F                    MSC:  AACSB Analytic

 

 

20. A manufacturer having a restriction on territories in the form of a sole outlet is a per se violation.

 

ANS:  F                    MSC:  AACSB Analytic

 

21. A “suggested retail price”  is not a violation of the antitrust laws.

 

ANS:  T                    MSC:  AACSB Analytic

 

 

22. Requiring buyers to purchase one product in order to get another is acceptable practice and not a violation of the Sherman Act.

 

ANS:  F                    MSC:  AACSB Analytic

 

23. The United States Supreme Court generally has held that vertical merger agreements should not automatically be condemned as an unlawful restraint of interstate commerce merely because they create the potential to monopolize it.

 

ANS:  T                    MSC:  AACSB Analytic

 

24. Criminal penalties are possible under the Sherman Act.

 

ANS:  T                    MSC:  AACSB Analytic

 

25. 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

 

26. 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. Unfair competition is controlled by:

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

 

 

ANS:  D                    MSC:  AACSB Analytic

 

3. Price regulations:

a.	may be imposed by the national government.
b.	may be imposed by state governments.
c.	include rules regarding credit terms and other charges.
d.	all of the above.

 

 

ANS:  D                    MSC:  AACSB Analytic

 

 

4. A person who attempts to monopolize any part of the trade or commerce among the states:

a.	is guilty of a misdemeanor.
b.	is guilty of a felony.
c.	can be fined up to $500,000.
d.	none of the above.

 

 

ANS:  B                    MSC:  AACSB Analytic

 

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

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

 

 

ANS:  A                    MSC:  AACSB Analytic

 

6. 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

 

7. 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

 

8. The Sherman Act applies to:

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

 

 

ANS:  D                    MSC:  AACSB Analytic

 

9. The Sherman Act does not prohibit:

a.	a company from engaging in purposeful conduct to exclude competitors.
b.	a seller from dominating a market because of superior product or business.
c.	competitors from agreeing not to deal with certain buyers.
d.	all of the above.

 

 

ANS:  B                    MSC:  AACSB Analytic

 

10. 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

 

11. 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

12. 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

 

13. The Robinson-Patman Act:

a.	prohibits charging different prices to different buyers when the margin costs are the same.
b.	allows sellers to offer incentives and bonuses to certain customers.
c.	allows sellers to refuse to deal with anyone for any reason.
d.	all of the above.

 

 

ANS:  A                    MSC:  AACSB Analytic

 

14. Tying:

a.	is a violation of the Sherman Act.
b.	occurs when sellers require buyers to purchase an unwanted product to get a wanted one.
c.	both of the above.
d.	none of the above.

 

 

ANS:  C                    MSC:  AACSB Analytic

 

15. Vertical mergers:

a.	occur between firms that have a competitor relationship.
b.	occur between firms that have buyer and seller relationships.
c.	are not covered by the Clayton Act.
d.	are always protected by the federal government.

 

 

ANS:  B                    MSC:  AACSB Analytic

 

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

a.	fine only.
b.	imprisonment only.
c.	both fine and imprisonment.
d.	neither fine nor imprisonment.

 

 

ANS:  C                    MSC:  AACSB Analytic

 

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

a.	$1 million.
b.	$500,000.
c.	$0.
d.	$100 million.

 

 

ANS:  A                    MSC:  AACSB Analytic

 

18. 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

 

19. 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. Freezo Refrigerators are sold by various retailers.  Most of the same retailers also sell Icy Refrigerators.  The Freezo brand outsells Icy in some stores, but not in others. Freezo has decided to offer secret bonuses and discounts to retailers where the sale of Freezo Refrigerators lags behind the sale of Icy Refrigerators.  Freezo sees this action as an advertising ploy to increase market share.  Retail stores where Freezo is number one are not eligible for any of these bonuses and discounts.  Discuss the implications of Freezo’s advertising plan.

 

ANS:

Both the Clayton Act and the Robinson-Patman Act prohibit price discrimination.  The Robinson-Patman Act makes it illegal to charge different prices to buyers when the marginal cost of the seller for the goods is the same.  Incentives and bonuses are considered part of the price.  The Clayton Act makes both the giving and receiving of any illegal price discrimination a crime so both Freezo and any retail outlets that accept the secret bonuses and discounts are guilty.

 

MSC:  AACSB Reflective Thinking | AACSB Analytic

 

2. In large cities talent agencies typically charge clients no more than a 10% commission.  Tina’s Talent, Amy’s Actors & Models and the Barton Agency are the only three talent agents in a small city.  Due to the limited amount of work available for actors and models in their city, the three talent agents have gotten together and agreed to never charge a commission below 15%.  Discuss if this is acceptable under the Sherman Act.

 

ANS:

This is an example of horizontal price-fixing and violates Section 1 of the Sherman Act.  Price is a sensitive element of competition and even discussion among competitors has been deemed an attempt to monopolize.

 

MSC:  AACSB Reflective Thinking | AACSB Analytic

 

3. Quickness Computer, Inc. is 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