Business Law Final Review 2
Platinum Corporation is charged with a violation of antitrust law that requires evaluation under the rule of reason. The court will consider a. only the effect of the conduct on trade. b. only the power of the parties to accomplish what they intend. c. only the purpose of the conduct. d. the effect of the conduct, the power of the parties, and the purpose of the conduct.
D. In applying the rule of reason, courts consider the purpose of the conduct, the effect of the conduct on trade, the power of the parties to accomplish what they intend, and in some cases, whether there are less restrictive alternatives to achieve the same goals.
Handy Tools, Inc., charges Jake's Valu Tools Store five cents per item and Kitchener's Home Store ten cents per item for the same product. The two stores are competitors. If this substantially lessens competition, it constitutes a. a market division. b. an exclusionary practice. c. a tying arrangement. d. price discrimination.
D. Price discrimination occurs when a seller charges different buyers different prices for identical goods. To violate the Clayton Act, among other requirements, the effect of the price discrimination must be to substantially lessen competition or otherwise create a competitive injury.
National Motors Corporation (NMC) makes sport utility vehicles (SUVs). Under the Clean Air Act, NMC is required to makes its SUVs comply with standards that, with respect to automobile exhaust emissions, are A. different but neither more nor less strict. B. less strict. C. more strict. D. the same.
D. Sport utility vehicles are now subject to the same standards for polluting emissions as automobiles. If new motor vehicles do not meet the emis- sion standards of regulations issued under the Clean Air Act, the EPA can order a recall of the vehicles and a repair or replacement of pollution- control devices.
A consumer can include a note in his or her credit file to explain any misinformation in the file, but the misinformation cannot be deleted.
F. A consumer can also include a note in his or her credit file to explain any misinformation in the file. Under the Fair Credit Reporting Act, consumers are entitled to have deleted from their files any misinformation that leads to a denial of credit, employment, or insurance. Consumers are also entitled to receive information about the source of the misinformation and about anyone who was given the misinformation.
No common law doctrines apply against polluters today.
F. Common law doctrines that were applied against polluters centuries ago may be applicable today. These include nuisance and negligence doctrines.
An exclusive dealing contract is a contract under which competitors agree to divide up customers.
F. Exclusive dealing contracts are those under which a seller forbids a buyer from purchasing products from the seller's competitors.
One who leases consumer goods in the ordinary course of business does not have to disclose any material terms in writing.
F. One who leases consumer goods in the ordinary course of their business must disclose all material terms in writing—clearly and conspicu- ously—if the goods are priced at $25,000 or less and the lease term exceeds four months. The Consumer Leasing Act of 1988 requires this.
Price discrimination occurs when a seller forbids a buyer to buy products from the seller's competitors.
F. Price discrimination occurs when sellers charge competitive buyers different prices for identical goods.
The Fair Debt Collection Practices Act applies to anyone who attempts to collect a debt.
F. The Fair Debt Collection Practices Act applies only to debt collectors that attempt to collect debts on another party's behalf. Typically, the col- lector is paid a commission—a percentage of the amount owed or collected—for a successful collection effort.
There are no federal agencies that regulate sales.
F. The Federal Trade Commission (FTC), the Federal Reserve Board of Governors (Fed), and other federal agencies regulate the terms and conditions of sales. For example, the FTC issues regulations covering warranties and labels, and the Fed regulates credit provisions in sales contracts.
The Toxic Substances Control Act of 1976 regulates clean-ups of leaking hazardous waste disposal sites.
F. The Toxic Substances Control Act of 1976 regulates substances that the production and labeling of substances of that potentially pose an imminent hazard or an unreasonable risk of injury to health or the environment. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980 regulates the cleanup of leaking hazardous waste disposal sites.
Under federal environmental laws, there is a single standard for all polluters and all pollutants.
F. There are different standards for different pollutants and for different polluters. There are even different standards for the same pollutants and polluters in different locations. The standards cover the amount of emissions, the technology to control them, the notice that must be given to the public, and the penalties that may be imposed for noncompliance.
A merger between firms that compete with each other in the same market is a vertical merger.
F. This is a horizontal merger. A vertical merger occurs when a company at one stage of production acquires another company at a higher or lower stage in the chain of production and distribution.
An agreement that restrains competition between rivals in the same market is a vertical restraint.
F. This is a horizontal restraint.
A horizontal merger results when a company at one stage of production acquires another company at a higher or lower stage in the chain of production and distribution.
F. This is a vertical merger. A horizontal merger is a merger between firms that compete with each other in the same market.
A horizontal restraint results from an agreement between firms at different levels in the manufacturing and distribution process.
F. This is a vertical restraint.
A party who violates the Clean Air Act may realize economic benefits from the noncompliance.
F. To penalize those for whom a violation is cost-effective, the EPA can obtain a penalty equal to a violator's economic benefits from noncompliance. Other penalties include criminal fines. Private citizens can also sue polluters. It is generally more economically beneficial for a business to comply with the Clean Air Act.
A party who only transports hazardous waste to a disposal site cannot be held liable for any costs to clean up the site.
F. Under CERCLA, a party who transports waste to a hazardous waste site may be held liable for any and all of the cost to clean up the site. There is a variety of "potentially responsible parties" who may also be held liable, including the party who generated the waste, and current and past owners and operators of the site. A party assessed with these costs can bring a contribution action against the others, however, to recoup the amount of their proportion.
A consumer cannot rescind a contract freely entered into.
F. Under certain circumstances, consumers have a right to rescind their contracts. This is particularly true when a creditor has not made all required disclosures. A contract entered into as part of a door-to-door sale may be rescinded within three days, regardless of the reason.
narky Bling Corporation sells consumer products. Generally, the labels must use words as they are a. normally used in the scientific community. b. ordinarily understood by consumers. c. reasonably approved by ABC's officers. d. typically explained by the marketing department.
B. A regular-size box of laundry soap, for example, cannot be labeled "super-size" to exaggerate the amount of product in the box. Labels on con- sumer goods must identify the product, the manufacturer, the distributor, the net quantity of the contents, and the quantity of each serving (if the number of servings is given). Other information may also be required.
The U.S. Department of the Interior approves minor landscaping around a federal courthouse in St. Louis. This does not require an environmental impact statement A. only because it does not affect the quality of the environment. B. only because it is not "major." C. only because it is not "federal." D. because it does not affect the quality of the environment, is not "major," and is not "federal."
B. An action that affects the quality of the environment is "major" if it involves a substantial commitment of resources. Minor landscaping does not qualify because it does not involve such a commitment. The landscaping in this problem is "fed- eral," however, because a federal agency controls it, and any landscaping can affect the quality of the environment.
Nimby Company owns a hazardous waste disposal site that it sells to Omega Properties, Inc. Later, the EPA discovers a leak at the site and cleans it up. The EPA can recover the cost from a. Nimby only. b. Nimby or Omega. c. neither Nimby nor Omega. d. Omega only.
B. Any potentially responsible party can be charged with the entire cost to clean up a hazardous waste disposal site. Potentially responsible parties include former owners and may, under certain cir- cumstances, include a lender to the owner. Of course, a party held responsible for the entire cost may be able to recoup some of it in a contribution action against other potentially responsible parties.
Suburban Development Company (SDC) owns wetlands that it wants to fill in and develop as a site for homes. Under the Clean Water Act, before filling and dredging, SDC must obtain a permit from a. no one. b. the Army Corps of Engineers. c. the EPA. d. the U.S. Department of the Navy.
B. One of the goals of the Clean Water Act is to protect fish and wildlife. In part, this goal is met by protecting their habitats, such as swamps and other wetlands. Protecting these areas can also protect navigable waters into which wetlands drain and other surrounding resources. Before dredging and filling wetlands, a permit must be obtained from the Army Corps of Engineers.
Price Data Corporation and Consumer Marketing, Inc., are competitors. They form a joint venture to research, develop, and produce new software for a particular line of research and reporting. This joint venture is a. a per se violation of the Sherman Act. b. exempt from the antitrust laws. c. subject to continuing review by the appropriate federal agency. d. subject to the rule of reason.
B. Similar exemptions from the antitrust laws include cooperative research among small business firms, cooperation among U.S. exporters to compete with comparable foreign associations, and joint efforts by businesspersons to obtain legislative, judicial, or executive action.
Mills Industries, Inc., fails to obtain a permit before discharging waste into navigable waters. Under the Clean Water Act, Eagle can be required A. only to clean up the pollution. B. only to pay for the cost of cleaning up the pollution. C. to clean up the pollution or pay for the cost of doing so. D. to do nothing.
C. A polluter can be ordered to clean up the pollution or to pay for the clean-up costs, and other penalties may be imposed. For example, fines may be assessed and imprisonment ordered.
National Coal Association (NCA) is a group of independent coal mining companies. Demand for coal falls. The price drops. Coal Refiners Association, a group of coal refining companies, agrees to buy NCA's coal and sell it according to a schedule that will increase the price. This agreement is a. a per se violation of the Sherman Act. b. exempt from the antitrust laws. c. subject to continuing review by the appropriate federal agency. d. subject to the rule of reason.
A. An agreement to set prices in the manner described in the problem is a price-fixing agreement, which is a restraint of trade and a per se violation of Section 1 of the Sherman Act.
The U.S. Department of the Interior's approval of coal mining operations in several eastern states requires an environmental impact statement a. because it affects the quality of the environment, is "federal," and is "major." b. only because it affects the quality of the environment. c. only because it is "federal." d. only because it is "major."
A. An environmental impact statement (EIS) must be prepared when a major federal action significantly affects the quality of the environment. An action that affects the quality of the environment is "major" if it involves a substantial commitment of resources and "federal" if a federal agency has the power to control it.
Richer Resources, Inc., and Sellers Supply Corporation are competitors. They merge, and after the merger, Richer Resources is the surviving firm. To assess whether this is in violation of the Clayton Act requires a look at a. concentration. b. discrimination. c. division. d. power.
A. An important consideration in determining whether a merger substantially lessens competition and hence violates the Clayton Act is market concentration (the market chares among the firms in the market). If a merger creates an entity with more than a small percentage market share, it is presumed illegal.
Medico Pharma Company is charged with violating antitrust law, subject to evaluation under the rule of reason. Medico's conduct is unlawful a. if the anticompetitive harm outweighs the competitive benefits. b. if the competitive benefits outweigh the anticompetitive harm. c. if the conduct is blatantly anticompetitive. d. only if it does not qualify for an exemption.
A. Conduct subject to the rule of reason is unlawful if its anticompetitive harms outweigh its competitive benefits. Conduct typically subject to a rule of reason analysis includes trade association activities, joint ventures, territorial or customer restrictions, refusal to deal, price discrimination, and exclusive-dealing contracts.
A group of foreign manufacturers organize to control the price for replacement auto parts in the United States. Drivers Choice Company, a U.S. firm, joins the group. If their actions have a substantial effect on U.S. commerce, a suit for violations of U.S. antitrust laws may be brought against a. Drivers Choice and the foreign manufacturers. b. neither Drivers Choice nor the foreign manufacturers. c. only Drivers Choice. d. only the foreign manufacturers.
A. Of course, a U.S. firm is subject to the juris- diction of a U.S. court. For a U.S. court to hear a case against a foreign entity under U.S. antitrust laws, the entity's alleged violation of the law must have a substantial effect on U.S. commerce (or be a per se violation). In other words, foreign and domes- tic firms may be sued for violations of U.S. antitrust laws.
Slick Toy Company begins marketing a new toy that is highly flammable. The Consumer Product Safety Commission may a. ban the toy's future manufacture and sale, and order that the toy be removed from the market. b. ban the toy's future manufacture and sale only. c. do nothing until there is an injury or damage on which to base an action. d. order that the toy be removed from the market only.
A. The Consumer Product Safety Commission (CPSC) has sufficiently broad authority to remove from store shelves any product that it believes is imminently hazardous and to require manufacturers to report on products already sold. Additionally, the CPSC can ban the make and sale of any product that the CPSC deems to be potentially hazardous. The CPSC also administers other product safety legislation.
The ordinary business of Homeowner Credit Company is to lend money to consumers. Homeowner must disclose all credit terms clearly and conspicuously in a. all credit transactions. b. any credit transaction in which payments are to be made in more than four installments. c. any credit transaction in which payments are to be made in more than one installment. d. no credit transaction.
B. This is required under Regulation Z (which was issued by the Federal Reserve Board under the Truth in Lending Act) and applies to any creditor who, in the ordinary course of business, lends money or sells goods on credit to consumers, or arranges for credit for consumers. The information that must be disclosed includes: the specific dollar amount being financed; the annual percentage rate of interest; any financing charges, premiums or points; the number, amounts, and due dates of payments; and any penalties imposed on delinquent payments or prepayment.
Nick comes to Maria's home and, after a long presentation, sells her a vacuum cleaner. Maria has a. no right to rescind this transaction. b. three days to exercise any "lowest" price guaranty. c. three days to rescind this transaction. d. three days to substitute a neighbor as the customer in this transaction.
B. Under certain circumstances, consumers have a right to rescind their contracts. In a door-to- door sale, a consumer generally has at least a three- day cooling-off period within which to rescind the transaction. Salespersons are required to give consumers written notice of this right.
HazMat Company operates a hazardous waste storage facility. If HazMat buries unlabeled containers without determining their contents and the containers leak, HazMat could be found to have violated A. neither the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) nor the Resource Conservation and Recovery Act (RCRA). B. the CERCLA and the RCRA. C. the CERCLA only. D. the RCRA only.
B. Under the Resource Conservation and Recovery Act of 1976, the EPA monitors and controls the disposal of hazardous waste. Under the Comprehensive Environmental Response, Compensation, and Liability Act, the EPA regulates the cleanup of hazardous waste sites when a release occurs.
Petro, Inc., ships unlabeled containers of hazardous waste to off-site facilities for disposal. If the containers later leak, Petro could be found to have violated A. neither the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) nor the Resource Conservation and Recovery Act (RCRA). B. the CERCLA and the RCRA. C. the CERCLA only. D. the RCRA only.
B. Under the Resource Conservation and Recovery Act, producers of hazardous waste must properly label and package waste to be transported. Under the Comprehensive Environmental Response, Compensation, and Liability Act, the party who generated the waste disposed of at a site can be held liable for cleanup costs.
US Tobacco Corporation (USTC) sells tobacco products. On the packages of its smokeless tobacco products, USTC must include warnings about health hazards associated with a. cigarettes. b. smokeless products. c. tobacco products generally. d. none of the choices.
B. Under the Smokeless Tobacco Health Education Act of 1986, packages of smokeless tobacco products must include warnings about the health hazards associated with the use of smokeless tobacco similar to warnings contained on cigarette packages.
Interstate Sales, Inc. (ISI), is charged with violating antitrust law. ISI's conduct is a per se vio- lation a. if the anticompetitive harm outweighs the competitive benefits. b. if the competitive benefits outweigh the anticompetitive harm. c. if the conduct is blatantly anticompetitive. d. only if it does not qualify for an exemption.
C. Conduct that is blatantly anticompetitive is a per se violation of antitrust law. This is the most important circumstance in determining whether an action violates the antitrust laws. If an action undercuts competition, a court will not allow a party to undertake it. Such conduct typically includes price- fixing agreements, group boycotts, and horizontal market divisions. The U.S. Department of Justice can prosecute violations of the Sherman Act as criminal or civil violations, but can enforce the Clayton Act only through civil proceedings. The Federal Trade Commission can also enforce the Clayton Act (and has sole authority to enforce the Federal Trade Commission Act). A private party can sue under the Clayton Act if he or she is injured by a violation of any antitrust law.
Krunchies, Inc., sells snack foods. Krunchies must include on the packages a. no nutrition information. b. the identity of the product only. c. the identity of the product, the net quantity of the contents, and the number of servings. d. the net quantity of the contents and the number of servings only.
C. The Fair Packaging and Labeling Act requires that products include a variety of information on their labels. Besides the information specified in the answer to this problem, manufactures must identify themselves and the packager or distributor or the product, as well as nutrition details, including how much and what type of fat a product contains.
Ridgetop, Inc., controls 80 percent of the market for telecommunications equipment in the southeastern United States. To show that Ridgetop is monopolizing that market in violation of the Sherman Act requires proof of a. only the possession of monopoly power in the relevant market. b. only the willful acquisition or maintenance of monopoly power. c. the possession of monopoly power in the relevant market and its willful acquisition or maintenance. d. none of the choices.
C. The elements of the offense of monopolization include monopoly power and its willful acquisition. Market domination that results from legitimate competitive behavior (such as foresight, innovation, skill, and good management) is not a violation.
Red Glow Power Plant burns fossil fuels. Under the Clean Air Act and EPA regulations, as a major new source of possible pollution, to reduce emissions the plant must use A. the best available technology (BAT). B. the lowest common denominator (LCD). C. the maximum achievable control technology (MACT). D. the minimum allowable technology (MAT).
C. Under the 1990 amendments to the Clean Air Act, different standards apply to existing sources and major new sources. Major new sources must use the maximum achievable control technology (MACT) to reduce emissions from the combustion of fossil fuels. Other factories and businesses must reduce emissions of hazardous air pollutants with the best available technology.
Evolve Industries' factories emit toxic air pollutants. Under the Clean Air Act and EPA regulations, Evolve is required to A. eliminate all air polluting emissions. B. install emission control equipment on its products. C. reduce emissions by installing the maximum achievable control technology. D. remove all pollutants from its factories.
C. Under the 1990 amendments to the Clean Air Act, different standards apply to existing sources and major new sources. Major new sources must use the maximum achievable control technology to reduce emissions from the combustion of fossil fuels. Other factories and businesses must reduce emissions of hazardous air pollutants with the best available technology.
Ed takes out a student loan from First National Bank. After graduation, Ed goes to work, but he does not make payments on the loan. The bank agrees with Good Collection Agency (GCA) that if GCA collects the debt, it can keep a percentage of the amount. To collect the debt, GCA can contact a. Ed at his place of employment, even if his employer objects. b. Ed at unusual or inconvenient times or any time if he retains an attorney. c. Ed only to advise him of further action that GCA will take. d. third parties, including Ed's parents, unless ordered otherwise by a court.
C. Under the Fair Debt Collection Practices Act, once a debtor has refused to pay a debt, a collection agency can contact the debtor only to advise him or her of further action to be taken. None of the rest of these choices would be legitimate possibilities.
Labels must be accurate.
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Tech, Inc., sells its brand-name computer equipment directly to its franchised retailers. Depending on how existing franchisees do, Tech may limit the number of franchisees in a given area to reduce intrabrand competition. Tech's restrictions on the number of dealers is a. a per se violation of the Sherman Act. b. exempt from the antitrust laws. c. subject to continuing review by the appropriate federal agency. d. subject to the rule of reason.
D. Territorial or customer restrictions, like the restriction described in the problem, are judged under a rule of reason. The rule of reason involves a weighing of competitive benefits against anticompetitive harms. Here, the manufacturer's restriction on its dealers would likely be considered lawful be- cause, although it reduces intrabrand competition, it promotes interbrand competition.
Tasty Treat Company advertises that its cereal, "Fiber Rich," reduces cholesterol. After an investigation and a hearing, the FTC finds no evidence to support the claim. To correct the public's impression of Fiber Rich, the most appropriate action would be a. a cease-and-desist order. b. a civil fine. c. a criminal fine. d. counteradvertising.
D. The FTC has the power to issue a cease-and- desist order, but in some cases, such an order is not enough to stop the harm. With counteradvertising (also known as corrective advertising), an advertiser attempts to correct earlier misinformation by admitting that prior claims about a product were untrue.
Jada receives an unsolicited credit card in the mail and tosses it on her desk. Without Jada's permission, her roommate Loni uses the card to buy new clothes for $1,000. Jada is liable for a. $1,000. b. $500. c. $50. d. $0.
D. The Truth-in-Lending Act includes rules covering credit cards. There is a provision that limits the liability of a cardholder to $50 per card for unauthorized charges made before the creditor is notified, and exempts a consumer from liability if the card was not properly issued. When a card is not solicited, it is not "properly issued," however, and thus a consumer, in whose name unauthorized charges are made, is not liable for those charges in any amount.
Eve borrows money to buy a car and to pay for repairs to the roof of her house. She also buys furniture in a transaction financed by the seller whom she will repay in installments. If all of the parties are subject to the Truth-in-Lending Act, Regulation Z applies to a. the car loan only. b. the home improvement loan only. c. the retail installment sale only. d. the car loan, the home improvement loan, and the retail installment sale.
D. When contracting parties are subject to the Truth-in-Lending Act (TILA), Regulation Z applies to any transaction involving an installment sales contract in which payment is to be made in more than four installments. Normally, such loans as those described in this problem require more than four installments to repay. In any transaction subject to Regulation Z, the lender must disclose all of the credit terms clearly and conspicuously.
Local governments can control some aspects of the environment through zoning laws.
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Power sufficient to control prices and exclude competition in a market is monopoly power.
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States may restrict discharge of chemicals into the water or air.
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The Environmental Protection Agency (EPA) can clean up a release of hazardous waste at a hazardous waste disposal site and recover the entire cost from the site's owner or operator.
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The Environmental Protection Agency sets limits on discharges of pollutants into water.
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The Environmental Protection Agency sets maximum levels for noise.
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The TILA applies to creditors who, in the ordinary course of business, sell goods on credit to consumers.
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The same laws that apply to other media generally protect consumers online.
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A relevant product market includes products that are sufficient substitutes for each other.
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Advertising will be deemed deceptive if a consumer would be misled by the advertising claim.
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An advertiser cannot fax ads to consumers without their permission.
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An agreement between competitors to fix prices is a per se violation.
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An agreement that is inherently anticompetitive is illegal per se.
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