This Document Contains Chapters 1 to 5 Chapter 1—The Nature and Sources of Law TRUE/FALSE 1. The pattern of rules that society uses to control the conduct of individuals in their relationships is called law. Answer: True 2. The law works to cause our society to operate in an inefficient manner. Answer: False 3. Law is often defined as the body of principles that courts will enforce. Answer: True 4. Jane asserts she has a legal right. Jane is really saying she has an obligation to perform or refrain from performing an act. Answer: False 5. Rights always stand alone, without any duties. Answer: False 6. Rights guaranteed in the United States Constitution are accompanied by duties. Answer: True 7. Court decisions and statutes can take away rights created by the United States Constitution. Answer: False 8. One of our most important rights is the right of privacy. Answer: True 9. The right to be secure against unreasonable searches and seizures conducted by the police is guaranteed by state statute. Answer: False 10. The United States Constitution provides that we have a right to be free from intrusions by others. Answer: True 11. The private life of a nonpublic citizen is subject to public scrutiny. Answer: False 12. One advantage of our current legal system is that the growth of technology has not created many new laws. Answer: False 13. The right of privacy does not apply to intrusions into our privacy by means of new technology. Answer: False 14. Several layers of law are enacted at different levels of government to provide the framework for business and personal rights and duties. At the base of this framework of laws is constitutional law. Answer: True 15. A constitution is a body of principles that establishes the structure of a government and the relationship of that government to the people who are governed. Answer: True 16. Statutes are the only source of law. Answer: False 17. Within each state in the United States, only one constitution is in force. Answer: False 18. In addition to state legislatures and the United States Congress, all cities, counties, and other governmental subdivisions have some power to adopt ordinances within their sphere of operation. Answer: True 19. Both Congress and state legislatures enact statutory law. Answer: True 20. Administrative regulations are a type of law. Answer: True 21. Administrative regulations generally do not have the force of a statute. Answer: False 22. Case law consists of the rules and regulations parties agree to as part of their contractual relationship. Answer: False 23. Courts can create law. Answer: True 24. When a court decides a new question or problem, the decision is called a precedent. Answer: True 25. The group of time-honored rules that courts have used to solve similar problems for decades is called stare decisis. Answer: True 26. Time honored rules of the community are called the common law. Answer: True 27. Treaties made by the United States are not deemed part of the law. Answer: False 28. Uniform State Law generally is not applicable to business. Answer: False 29. Those uniform state laws that have been adopted by individual states were first written by Congress. Answer: False 30. Substantive law creates rights and duties. Answer: True 31. Civil laws define wrongs against society. Answer: False 32. Law may be classified in terms of principles of law and principles of equity. Answer: True 33. In the United States today, we generally have one law court and one equity court. Answer: False MULTIPLE CHOICE 1. Law is: A. a body of religious principles held by all members of society. B. a body of principles that society establishes to keep things running smoothly. C. always the result of case-law decisions. D. derived solely from the United States Constitution. Answer: B 2. Law consists of: A. principles that govern conduct. B. mere guidelines. C. arbitrary rules. D. none of the above. Answer: A 3. The law could best be described as: A. only statutory in nature. B. only the creation of our courts. C. a collection of rights. D. none of the above. Answer: C 4. Our rights flow from: A. the Constitution. B. federal statutes. C. city ordinances. D. all of the above. Answer: D 5. A right can exist: A. by itself. B. only if created by a court. C. only if there is a corresponding duty. D. only under local law. Answer: C 6. A right is defined as: A. an obligation of law imposed to perform an act. B. a legal capacity to require another party to perform an action. C. any written promise. D. none of the above. Answer: B 7. Individual rights guaranteed in the United States Constitution: A. have no accompanying duties. B. apply only to a small number of individuals. C. are subject to state legislative laws. D. generally have accompanying duties. Answer: D 8. Rights guaranteed in the United States Constitution: A. cannot be taken away by statutes or court decisions. B. can be taken away by statutes. C. can be taken away by court decisions. D. can be taken away by local ordinances. Answer: A 9. The right of privacy consists of: A. the right to be secure against unreasonable searches by the government only. B. the right to protection against intrusions by others only. C. both the right to be secure against unreasonable searches by the government and the right to protection against intrusions by others. D. none of the above. Answer: C 10. Sheriff Jane desires to search your home. What law requires that the sheriff obtain a search warrant? A. the Fourth Amendment of the United States Constitution B. the Equal Protection Clause C. state statute D. local uniform police ordinances Answer: A 11. The right to privacy applies to protect you from unreasonable searches: A. to you personally. B. to your home. C. to your business. D. all of the above. Answer: D 12. Your private life is protected from intrusions by other people by: A. the Fourth Amendment of the United States Constitution. B. the Equal Protection Clause. C. court decisions of the United States Supreme Court. D. local ordinance. Answer: C 13. Interpretations of aspects of the right to privacy are often found in: A. statutes. B. customs. C. societal guidelines. D. none of the above. Answer: A 14. Technology: A. has not created situations that require the application of new rules of law. B. has indeed created situations that require the application of new rules of law. C. has done away with the right of privacy. D. has made it easier to identify when one's privacy has been invaded. Answer: B 15. Several layers of law are enacted at different levels of government to provide the framework for business and personal rights and duties. At the base of this framework of laws is: A. statutory law. B. case law. C. constitutional law. D. all of the above. Answer: C 16. Sources of American law include: A. state constitutions. B. statutes enacted by state legislatures. C. court decisions. D. all of the above. Answer: D 17. ____ is a body of principles that establishes the structure of a government and the relationship of that government to the people. A. A constitution B. Statutory law C. Stare decisis D. The common law Answer: A 18. Statutory law is created by: A. Congress. B. state legislatures. C. local governments. D. all of the above. Answer: D 19. Administrative regulations: A. are essentially industry advisories. B. are case-law precedents. C. generally have the force of statute. D. are Constitutional principles. Answer: C 20. Legal principles expressed for the first time in court decisions are called: A. statutory law. B. stare decisis. C. common law. D. precedents. Answer: D 21. Statutes which are drafted from Uniform State Laws are often used to regulate: A. business. B. foreign countries. C. criminal behavior. D. none of the above. Answer: A 22. Uniform State Laws are used as a basis for laws by which of the following entities? A. Congress B. international trade associations C. state legislatures D. local governmental entities Answer: C 23. Substantive law: A. specifies the steps to follow to enforce legal rights. B. concerns equitable relief only. C. creates, defines, and regulates rights and liabilities. D. draws solely on English legal principles. Answer: C 24. Criminal laws: A. define wrongs against society. B. define the rights of one person against another. C. carry damage remedies against the wronged individual. D. all of the above. Answer: A 25. ______ is a body of law that provides justice when the law does not offer an adequate remedy. A. Ethics B. Regulations C. Equity D. None of the above. Answer: C CASE 1. Jacob just won the state lottery. Discuss his right to privacy. Answer: Within the context of the Fourth Amendment, Jacob continues to be protected to the same extent he was prior to winning. Regarding his right to be protected from intrusions by others, however, he most likely will have to give up some privacy rights because of his good fortune; that is, although he remains a private citizen, he will not have quite the same degree of privacy protection in this arena as he had before winning the lottery. 2. A new state law mandates that all employers must prohibit smoking on employer premises. The law further provides that any employer who allows an employee or a client/ customer to smoke on its premises is subject to a court order requiring the employer to enforce the law. Describe this statute in terms of all possible classification methods. Answer: The law is substantive because it defines rights and liabilities of business owners. The law is also equitable, based on the remedy of specific performance, since it subjects the employer to a court order requiring the employer to actually do something; i.e., forbid smoking on its premises. Chapter 2—The Court System and Dispute Resolution TRUE/FALSE 1. The power of a court to decide certain types of cases is called jurisdiction. Answer: True 2. All courts have original jurisdiction. Answer: False 3. A court with limited jurisdiction can only hear certain types of cases. Answer: True 4. Reversible errors are commonly made by supreme courts. Answer: False 5. The federal court system consists of three levels. Answer: True 6. All federal courts are expressly created by the United States Constitution. Answer: False 7. The United States Supreme Court can never function as a court of original jurisdiction. Answer: False 8. A probate court is an example of a general trial court. Answer: False 9. A family law court is an example of a specialty court. Answer: True 10. State supreme courts generally hear all cases appealed to them. Answer: False 11. The defendant in a civil case is the party who is suing. Answer: False 12. To begin a lawsuit, both parties must appear in person and state their claims and defenses in court. Answer: False 13. If questions of fact are involved, the court will decide the case based on the pleadings alone. Answer: False 14. Documents filed by both parties at the beginning of a lawsuit are called the pleadings. Answer: True 15. Depositions are usually taken in the courtroom. Answer: False 16. A peremptory challenge to a prospective juror generally can be exercised without giving a reason. Answer: True 17. A motion for a directed verdict occurs immediately after the last pleading is filed. Answer: False 18. Once a lawsuit is commenced, the case must go to the jury. Answer: False 19. Generally, the prevailing party in a lawsuit will be awarded the costs of the action, including witness fees and jury fees. Answer: True 20. Garnishment is a procedure accomplished only by attorneys. Answer: False 21. Mediation is a generally accepted method of resolving disputes. Answer: True 22. Arbitration procedures occur in a court of law. Answer: False 23. The Uniform Arbitration Act requires a written agreement to arbitrate an issue. Answer: True 24. When arbitration is mandatory under a statute, the losing party generally can appeal from such arbitration to a court. Answer: True 25. A mediator has the power to actually make a decision in a dispute. Answer: False 26. Mediation tends to keep discussions between parties proceeding. Answer: True 27. If there is a reference to a third party to determine a dispute, in most cases the decision is binding. Answer: True 28. A "rent-a-judge" serves as a referee. Answer: True 29. The decision of an association tribunal is binding on both the association member and the consumer. Answer: False 30. Provisions in contracts may actually prevent future lawsuits from occurring. Answer: True MULTIPLE CHOICE 1. A court is a tribunal established by: A. the parties to a lawsuit. B. the government. C. the parties to a contract. D. none of the above. Answer: B 2. The power given to courts to hear certain types of cases is called: A. jurisdiction. B. mediation. C. arbitration. D. summary judgment. Answer: A 3. Original jurisdiction courts are generally ____________. A. supreme courts B. appellate courts C. trial courts D. limited courts Answer: C 4. Which of the following is an example of limited or special jurisdiction court? A. Probate court B. Juvenile court C. Domestic Relations court D. All of the above. Answer: D 5. The federal court system consists of ______ level(s) of courts. A. one B. two C. three D. four Answer: C 6. The types of civil cases that can be brought in federal district courts include: A. cases in which any state in the United States is one of the parties. B. cases between citizens of different states that involve damages of $75,000 or more. C. cases brought by the citizen of one state against the state government of the same state. D. all of the above. Answer: B 7. The United States Supreme Court was created by: A. Congress. B. the President. C. the Uniform State Law Commission. D. none of the above. Answer: D 8. State supreme courts primarily have what type of jurisdiction? A. appellate B. limited trial court C. general D. none of the above Answer: A 9. The person who initiates a civil lawsuit is called the: A. defendant. B. prosecutor C. plaintiff. D. judge. Answer: C 10. Service of process refers to: A. a demand letter sent by the plaintiff to the defendant. B. a reply sent to the plaintiff by the defendant. C. giving the defendant proper notice that a legal action is pending. D. a record of the court's preliminary hearing. Answer: C 11. The answer to the complaint is filed by the: A. defendant. B. prosecutor. C. plaintiff. D. judge. Answer: A 12. When a defendant asserts that even if everything the plaintiff said is true there is no right to recovery, the defendant is making a: A. counterclaim. B. motion to dismiss. C. motion for summary judgment. D. deposition. Answer: B 13. Who is entitled to file a motion to dismiss? A. defendant only B. plaintiff only C. both plaintiff and defendant D. none of the above Answer: A 14. A deposition: A. is the testimony of a witness taken under oath. B. is conducted outside of the courtroom. C. can be used to impeach a witness. D. all of the above. Answer: D 15. Voir dire examination is used in connection with: A. determining whether the pleadings are valid. B. jury selection. C. deciding whether to appeal a trial court decision. D. none of the above. Answer: B 16. The _____ rule(s) on the admissibility of evidence. A. Judge B. Jury C. Attorneys D. court clerk Answer: A 17. A motion for a directed verdict is appropriate: A. immediately after the pleadings are filed. B. immediately after discovery is concluded. C. immediately after the presentation of all evidence at trial. D. on appeal. Answer: C 18. One of the motions that can be made after a verdict has been entered is a motion for a: A. mistrial. B. summary judgment. C. directed verdict. D. judgment notwithstanding the verdict. Answer: D 19. Costs generally are awarded to the prevailing party in litigation. Those costs usually include: A. filing fees. B. service-of-process fees. C. deposition transcript costs. D. all of the above. Answer: D 20. Garnishment applies to the judgment debtor’s: A. wages. B. attorney fees. C. land and home. D. cars. Answer: A 21. Which is not considered an alternate means of dispute resolution? A. civil lawsuit B. arbitration C. association tribunals D. minitrial Answer: A 22. In mediation, the mediator acts as a: A. judge. B. attorney. C. messenger. D. expert witness. Answer: C 23. A summary jury trial is: A. binding on the parties. B. a mock trial. C. a full and complete hearing of all evidence pertaining to the case. D. a shortcut to establishing judicial precedent. Answer: B 24. In a minitrial: A. only three jurors are used. B. the trial addresses only portions of the case or certain issues related to the case. C. the decision is always fully binding on the parties. D. none of the above. Answer: B 25. Judicial Triage: A. is a court management tool. B. results in some cases being expedited. C. results in some cases being postponed. D. all of the above. Answer: D CASE 1. Chandra sues Martin for breach of contract. Both parties have completed discovery. Chandra now wants her attorney to file a motion to have the judge rule in her favor without having to proceed further. Chandra does not know whether the motion to dismiss or the motion for a summary judgment is proper. Which motion is proper and why? Answer: As between the motion to dismiss and the motion for summary judgment, Chandra’s attorney should file a motion for summary judgment, since the parties are beyond the pleadings stage of litigation, and since they have completed discovery. Using evidence gathered during discovery, such as affidavits and/or deposition testimony, Chandra’s attorney could argue that there are no material issues of fact disputed by the parties, and that Chandra is entitled to judgment as a matter of law. 2. Billy has a dispute with Sleepdigit Bedspring Company over a number of beds Billy recently purchased from Sleepdigit for use in his hotel. Billy needs to decide whether to pursue litigation or employ an alternative means of dispute resolution. What advantages are most often associated with alternative dispute resolution? Which choice would be most appropriate in this case? Answer: The most frequently cited advantages of alternative dispute resolution, compared to litigation, are a) cost savings and b) time savings. As far as a specific method of alternative dispute resolution, arbitration might be the best approach for Billy in his commercial dispute with Sleepdigit; in addition to the cost-saving and time-saving advantages of alternative dispute resolution, arbitration has a long history of success in the area of commercial contracts. Chapter 3—Business Ethics, Social Forces, and The Law TRUE/FALSE 1. Ethics is a philosophical concept that deals with values related to the nature of human conduct. Answer: True 2. The field of business ethics recognizes that social values typically must yield to the profitability motive. Answer: False 3. Moral standards based on positive law may allow businesses to conduct themselves unfairly so long as their actions are not illegal. Answer: True 4. Civil disobedience is the remedy natural law proponents use to change positive law. Answer: True 5. Kant’s theory understood that sometimes you have to use someone to achieve a one-sided benefit. Answer: False 6. The theory of justice is based on the concept that if there were no laws or rules reasonable people would develop fair rules and standards. Answer: True 7. Ethical egoism believes that feeling guilty about poor ethical decisions will lead to better future decisions. Answer: False 8. Moral relativists believe that ethical decisions will differ based on circumstances. Answer: True 9. In applying the stakeholder model of business ethics, only the interests of important constituencies affected by an action need to be satisfied. Answer: False 10. There is often a conflict between the goal of making money for shareholders and the goal of solving social problems through business. Answer: True 11. In addition to issues of social responsibility, business values and ethics play an important role in the success or failure of a business. Answer: True 12. Trust is a fundamental basis of the capitalist system that is central to the expectations of investors, customers, and other firm stakeholders. Answer: True 13. Unfortunately, there is no evidence that commitment to ethical values is linked with financial performance of business organizations. Answer: False 14. Ethical violations can cause lasting detriment to a company's ability to do business through impacts on the company's reputation. Answer: True 15. An accumulation of complaints from employees, customers, or investors can lead to imposition of restrictive new regulations and laws. Answer: True 16. Unwillingness of businesses to voluntarily improve the ethics of their practices has little practical effect on the regulatory environment. Answer: False 17. Under United States law, the legal owner (titleholder) of property is free to engage in any use of the property that he or she may desire. Answer: False 18. Freedom from economic domination is a personal right protected under United States law. Answer: True 19. Individual intentions, as expressed in contracts and wills, will not be given effect in the United States unless expressly authorized by law. Answer: False 20. Federal laws on the disclosure in the sales of securities and shareholder relations were developed following the stock market crash of 1929. Answer: True 21. Credit laws and laws regarding checks, notes and drafts were developed to help facilitate trade. Answer: True 22. The often competing rights of both debtors and creditors are balanced and protected from excesses under United States law. Answer: True 23. Mortgages, security interests, and surety relationships are legal mechanisms created primarily to promote stability and flexibility in trade. Answer: False 24. Courts look at each case at a given point in time and are not concerned with former cases and rulings when making current decisions. Answer: False 25. United States common law requires that case precedents be followed under all circumstances. Answer: False 26. Despite the importance of ethical behavior for business success, few Fortune 500 companies have codes of ethics to resolve ethical dilemmas. Answer: False 27. Differences among businesses preclude the development of any universal categories of ethical behavior. Answer: False 28. Over half of all Fortune 500 firms train their employees to recognize and deal with particular types of behavior that breach their ethical codes. Answer: True 29. Maintaining confidentiality is an ethical issue for both employees and company management. Answer: True 30. Recognizing that an ethical dilemma exists is usually far more difficult than resolving the dilemma once its existence is recognized. Answer: False MULTIPLE CHOICE 1. Positive law: A. is enacted by government authority. B. ensures that businesses will follow a high level of ethical standards. C. is also known as natural law. D. all of the above. Answer: A 2. Immanuel Kant’s categorical imperative theory: A. requires that we avoid one-sided benefits as a result of ethical decisions. B. makes it easier to settle international business ethical decisions. C. believes you have to be fair and ethical whether you want to be or not. D. all of the above. Answer: A 3. Rights theory: A. is also known an entitlement theory. B. states that everyone has a set of rights. C. believes that it is the government’s responsibility to protect our rights. D. all of the above. Answer: D 4. The Utilitarian Theory: A. holds that we all act in our own self-interest. B. is based on doing the most good for the most people. C. resolves ethical dilemmas according to time and place. D. believes that solving ethical dilemmas requires training Answer: B 5. Among the guidelines for balancing the interests of various stakeholders to resolve ethical dilemmas in business are: A. identify potential parties who could be injured by the proposed action. B. define the problem from both the decision maker's and opposing viewpoints. C. ask whether you would be willing to describe a proposed action to your family, the board of directors, a congressional hearing, or other public forum. D. all of the above. Answer: D 6. Companies with 100 years of consistent dividends: A. use positive laws as a guide for ethical decisions. B. have a goal of profitability no matter what the cost. C. have a strong commitment to values. D. all of the above. Answer: C 7. The importance of trust as a fundamental principle underlying business transactions is illustrated by expectations that: A. investors will be able to earn a return on their investments. B. employees may be discharged at any time for any reason without notice. C. litigation is inevitable because parties to agreements usually break promises. D. insider trading proves that the economic system underlying business is flawed. Answer: A 8. Voluntary improvements in the fairness and ethics of business behavior are: A. less effective than those brought about by government regulation. B. less costly and intrusive than those brought about by government regulation. C. virtually non-existent in corporate America. D. more common in third-world countries than in the United States. Answer: B 9. The U.S. Patriot Act and airport security regulations were enacted for the protection of: A. the person. B. public, health, safety and morals. C. the state. D. personal rights. Answer: C 10. Laws that prohibit defamation, invasions of privacy, and reputation exist primarily: A. for protection of the person. B. for protection of public health, safety, and morals. C. for protection of property. D. for protection of the state. Answer: A 11. Laws that prohibit mislabeling of food, speeding, and sale of alcohol to minors exist primarily: A. for protection of the person. B. for protection of public health, safety, and morals. C. for protection of property. D. for protection of the state. Answer: B 12. Laws that prohibit theft, operation of a factory in areas zoned residential, and copyright infringement exist primarily: A. for protection of the person. B. for protection of public health, safety, and morals. C. for protection of property. D. for protection of the state. Answer: C 13. The passage of federal securities disclosure laws occurred largely as the result of: A. voluntary self-regulation by ethics experts in the securities industry. B. the stock market crash of 1929. C. changes in the international market for securities and negotiable instruments. D. all of the above. Answer: B 14. The ethical category of integrity and truthfulness is best expressed as maintaining one’s values and principles: A. so long as profits can be maintained. B. so long as the costs are not great. C. unless deviating will go unnoticed. D. despite the consequences or costs. Answer: D 15. Which of the following situations reflects a possible conflict of interest? A. You offer a company contract to a friend without checking competing bids. B. You hire a relative for a company position although another candidate is more qualified. C. You buy a piece of realty that would be suitable for a planned company project. D. All of the above. Answer: D 16. "Primum non nocere" is Latin for: A. Above all, do no harm. B. Let the buyer beware. C. Hear no evil, see no evil, and speak no evil. D. No news is good news. Answer: A 17. An ethical duty of confidentiality could be breached where: A. information obtained through research of the employer is disclosed. B. customer lists or leads are disclosed to a competitor. C. proprietary information or technology of a business is disclosed. D. all of the above. Answer: D 18. The Blanchard and Peale three-part test for resolving ethical dilemmas consists of the following questions: A. Is it legal? Is it ethical? Is it moral? B. Is it legal? Is it balanced? How does it make me feel? C. Is it ethical? Is it right? Does it pass the “front page of the newspaper” test? D. Is it right? Is it balanced? Is it fair? Answer: B 19. In applying the “front-page-of-the-newspaper” test to a contemplated course of conduct one should ask: A. Would I be found criminally liable if this winds up on the front page of the newspaper? B. Would I be liable for monetary damages if this winds up on the front page of the newspaper? C. Would I be willing to have my spouse, friends, and children read about this if it winds up on the front page of the newspaper? D. Would I be able to explain this to the authorities if it winds up on the front page of the newspaper? Answer: C 20. Which of the following is not a question business ethicist Laura Nash has developed to help businesspeople reach the right decision in ethical dilemmas? A. Have you defined the problem accurately? B. How would you define the problem if you stood on the other side of the fence? C. How did the situation occur in the first place? D. Does your proposed solution to the problem effectively balance the competing objectives of ethical decision-making and corporate profitability? Answer: D CASE 1. John Harrington operates a business that almost always hires skilled workers who are college graduates; currently, however, his business does have a part-time opening for an unskilled worker. Harrington is considering hiring an uneducated welfare recipient instead of a student from the local university. Apply the "Guidelines for Analyzing a Contemplated Action" to this problem. Answer: From the decision-maker's point of view, there is greater risk in hiring an uneducated welfare recipient instead of a college student. If an uneducated welfare recipient is hired, there may be disruption in the workplace resulting from skilled, educated employees working with an unfamiliar type of co-worker. The value of hiring an uneducated welfare recipient is twofold: First, there may be a greater likelihood of assisting someone with a family (i.e., more individuals would benefit); and, second, the firm would further the current governmental and societal initiative to move individuals from "Welfare to Work." 2. Thomas works for an internationally-renowned computer company. As a condition of his employment, Thomas signed a confidentiality agreement, in which he agreed not to disclose any trade secrets of the firm. The company has been researching a new computer advancement, and is on the brink of introducing this product to the buying public. Before the official product release, Thomas is considering offering information related to this new advancement to one of his company’s competitors for a price. What categories of ethical behavior might be impacted by Thomas’ decision to disclose this information to his employer’s competitor? Answer: All of the categories of ethical behavior would be impacted by Thomas’ decision to sell his employer’s proprietary information to a competitor. The categories of ethical behavior include: 1) Integrity and Truthfulness; 2) Promise-Keeping; 3) Loyalty-Avoiding Conflicts of Interest; 4) Fairness; 5) Doing No Harm; and 6) Maintaining Confidentiality. In terms of the first category of ethical behavior, Thomas would compromise his integrity by disclosing corporate trade secrets, and he would be untruthful in the sense that he would violate the confidentiality agreement with his firm in doing so. Second, his promise related to the confidentiality agreement would be broken. Third, selling such proprietary information would be a classic conflict of interest, in the sense that he would be benefiting himself (financially) to the detriment of his employer. Fourth, disclosure would not be fair, as it would breach the confidentiality agreement with his employer and deprive his employer of its diligently-worked-for competitive advantage. Fifth, disclosure would harm his employer and other stakeholders of the firm, since it would deprive the firm of its competitive advantage and the financial benefits of such an advantage. Finally, confidentiality would be violated. Chapter 4—The Constitution as the Foundation of the Legal Environment TRUE/FALSE 1. In a federal system, a central government is given power to act nationally, while states administer to local concerns. Answer: True 2. A constitution is the written document that establishes the structure of the government and its relationship to the people. Answer: True 3. The United States utilizes a tripartite division of government. Answer: True 4. The powers given by the federal government to the states are described as delegated powers. Answer: False 5. Some of the powers delegated to the national government still may be exercised by the states. Answer: True 6. The power of the states to adopt laws to protect the general welfare of the people is called police power. Answer: True 7. Ex post facto laws can be adopted by either states or the national government. Answer: False 8. The Constitution took certain powers away from the national government and gave them to the state governments. Answer: False 9. Silence of Congress indicates that Congress is unwilling to make changes to an existing law. Answer: False 10. When there is a direct conflict between a federal and a state law, federal law prevails under the supremacy clause. Answer: True 11. ”Preemption” means that the federal regulatory scheme is controlling. Answer: True 12. The Constitution may be amended, but it always has been interpreted in the same way. Answer: False 13. Changes to the Constitution have been brought about by interpretation, amendment, and practice. Answer: True 14. Under the "bedrock view," the purpose of a constitution is to state certain fundamental principles for all time. Answer: True 15. For the past century, the United States Supreme Court has generally followed the "living document" view in interpreting the Constitution. Answer: True 16. The greatest change to the Constitution has been made by the United States Supreme Court through interpretation. Answer: True 17. Many changes have been made to the Constitution by the constitutional method of amending. Answer: False 18. One of the characteristics of the “living” Constitution is limited government. Answer: False 19. When it comes to the constitution, stability is more important than flexibility. Answer: False 20. The living Constitution has as a characteristic a strong president. Answer: True 21. When we speak of government regulation of business we ordinarily mean state government regulation, not federal government intervention. Answer: False 22. Administrative agencies are, in effect, a fourth branch of the government. Answer: True 23. Because the power to regulate interstate commerce has been interpreted broadly, Congress has great power to adopt regulatory laws affecting the economy. Answer: True 24. Pursuant to the commerce clause, the United States Supreme Court has the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” Answer: False 25. When the federal government deregulates an industry, the states automatically have the power to regulate the same industry. Answer: False 26. The states may coin money as long as it is backed by gold. Answer: False 27. The Fifth and Fourteenth Amendments prohibit the national and state governments from depriving any person of property without due process of law. Answer: True 28. The Constitution prohibits state governments from denying any person the equal protection of the law. Answer: True 29. The Constitution prohibits discrimination based on reasonable classification. Answer: False 30. The purpose of the first ten amendments to the Constitution was to enlarge the power of the federal government. Answer: False 31. All current rights against governmental intrusion are expressly stated in the Constitution. Answer: False 32. The Bill of Rights provides protection for corporations. Answer: True MULTIPLE CHOICE 1. A system in which a central government is given power to administer to national concerns and individual states administer to local concerns is called: A. bicameral. B. constitutional. C. federal. D. tripartite. Answer: C 2. The U.S. Constitution: A. is unwritten. B. was brought over from England in its entirety. C. is a written document that specifies the structure of the government. D. prohibits the states from having their own constitutions. Answer: C 3. The legislative branch of government has the function of: A. making laws. B. executing the laws. C. interpreting the laws. D. all of the above. Answer: A 4. Judges of the United States: A. are appointed by the president, with the approval of the Senate. B. are appointed by the Senate, with the approval of the president. C. cannot be impeached. D. are elected by the public. Answer: A 5. A law to declare war: A. can be enacted by both state and federal governments. B. can be enacted only by the national government. C. can be enacted only by state governments. D. is prohibited by the U.S. Constitution. Answer: B 6. The power to tax income: A. is possessed only by the federal government. B. is possessed only by state governments. C. may be exercised concurrently by both state and federal governments. D. is controlled exactly like the power to wage war. Answer: C 7. Federal supremacy refers to: A. the power of the President. B. the power of the Supreme Court to make decisions. C. the power of the federal government to legislate in certain areas. D. all of the above. Answer: C 8. Federal law __________ conflicting state regulation when a federal law regulates that particular subject. A. coincides with B. is subordinate to C. parallels D. preempts Answer: D 9. The U.S. Constitution is a document that: A. is clear in allocating the rights and responsibilities of people and our government. B. can be interpreted only according to the bedrock principles of 1776. C. can be interpreted only in accordance with current values. D. must be interpreted to accommodate both stability and flexibility. Answer: D 10. The U.S. Constitution has been amended: A. only expressly. B. only by interpretation. C. only by practice. D. by all of the ways listed above. Answer: D 11. The greatest changes to the written Constitution have been brought about by: A. departure by treaty. B. judicial interpretation. C. constitutional amendment. D. amendment by practice. Answer: B 12. When the president negotiates a treaty with a foreign country and submits it to the Senate for approval, the president's action is: A. an express Constitutional amendment. B. an amendment by judicial interpretation. C. an amendment by practice. D. the power of manifest destiny. Answer: C 13. The "living” Constitution has which of the following characteristics? A. strong federal government B. strong president C. various administrative agencies with significant power D. all of the above Answer: D 14. Which of the following is not characteristic of the “living” Constitution? A. strong government B. strong President C. administrative agencies D. states' powers equal to federal powers Answer: D 15. Which of the following is true about administrative agencies? A. Administrative agencies exercise powers guaranteed to them in the U.S. Constitution. B. Administrative agencies exercise powers allocated to them by the president. C. Administrative agencies make decisions that are rarely reviewed by the courts. D. Administrative agencies make decisions that are effectively reviewed by voters. Answer: C 16. The commerce clause of the Constitution: A. prohibits the U.S. government from engaging in interstate commerce. B. prohibits the U.S. government from regulating interstate commerce. C. has been expanded by Supreme Court interpretations to give the U.S. government the power to regulate the general welfare of the nation. D. was declared unconstitutional in 1937. Answer: C 17. Within the past five years, the U.S Supreme Court has: A. placed some limitations on the commerce clause. B. increased Congressional authority for all activities that have economic impact. C. given states the ability to override the federal government on interstate commerce issues. D. all of the above Answer: A 18. Which of the following statements regarding the commerce clause is FALSE? A. If the federal government establishes safety device regulations for interstate carriers, a state cannot require different devices. B. States may not use their tax power for the purpose of discriminating against interstate commerce. C. The commerce clause empowers Congress to regulate interstate commerce, but not commerce with foreign nations. D. A state cannot refuse to allow an interstate waste collector to conduct business within the state on the grounds that the state already has enough waste collectors. Answer: C 19. Which of the following powers is not reserved solely to the national government? A. power to regulate interstate commerce B. power to tax C. power to coin money D. power to borrow money on the credit of the United States Answer: B 20. The due process clause: A. allows the U.S. government to take private property without due process. B. allows a state to take private property without due process. C. provides a guarantee of protection against loss of rights or property without the chance to be heard. D. does not apply to state governments. Answer: C 21. The concept of equal protection of the law: A. applies to both state and federal governments. B. prohibits any classifications whatsoever. C. applies only to conduct by private parties. D. does not permit reasonable classifications. Answer: A 22. The equal protection clause: A. requires all persons to be treated equally even if reasonable grounds for different classifications exist. B. allows laws that discriminate on the basis of moral standards. C. requires that a statute be sustained unless it is clearly arbitrary or capricious. D. allows laws that discriminate on the basis of cultural patterns. Answer: C 23. Which of the following is not protected under the privileges and immunities clause? A. right to go to another state and make a contract B. right to go to another state and vote in local elections C. right to go to another state and purchase property D. right to go to another state and open a business Answer: B 24. Under the U.S. Constitution: A. "persons" are expressly protected. B. particular rights of "persons" are expressly protected. C. certain rights of "persons" have been implied by the Supreme Court. D. both b and c. Answer: D CASE 1. A school district supplied school bus service for all children 12 years of age or under who lived at least one mile from school. This service was provided for transportation to and from school. Joanna was a 13-year-old student who lived in that school district. Joanna's home was 1.2 miles from school. Her parents brought suit against the school district alleging that Joanna was entitled to school bus service and the failure to provide such service denied her the equal protection of the law. Discuss the probable outcome of the lawsuit. Answer: The lawsuit probably will be unsuccessful. The equal protection clause does not require that all persons be treated equally. It requires a reasonable classification of individuals. If there is a rational basis for the classification, it will be permitted. In this case, if there is a rational basis for holding that 13-year-old children are old enough to transport themselves to school, then the regulation will be upheld. 2. The head of the Department of Transportation reviewed a film that demonstrated the effectiveness of air bags in automobiles. He then passed a rule that Ford Motor Company must retrofit, without charge to the automobile owner, all of its 1985 models as an experiment on the safety of the air bag. Ford refused to do so. The DOT held a hearing and decided to fine Ford $1 million for violating its regulation. A notification of this decision was mailed to Ford. What constitutional issues does this case raise? Answer: Adjudicating Ford's responsibility without a chance for Ford to argue its case violates due process. Requiring Ford to spend its money to add air bags to cars it has already sold also violates due process. Further, it violates equal protection to single out Ford instead of imposing an equal obligation on the entire automobile industry. There is no reasonable basis for applying such a regulation only to Ford. 3. California passed a law prohibiting any transporting of nuclear waste in the state unless the company doing so is a resident or is owned by residents of California. What constitutional issues does this law raise? Answer: Regulation of the production of nuclear energy and the disposal of nuclear waste is an area that has been preempted by federal law. Nuclear waste must often be transported if it is to be effectively stored. The appropriate federal agencies have established rules and regulations. To allow the states to have control would result in a patchwork of various laws throughout the country on a matter of national concern when uniformity is desirable. The commerce clause is interpreted to give the federal government power over matters affecting the general welfare of the nation, such as the production of nuclear energy and its related activities. Consequently, this area is preempted under the supremacy clause. It would further violate the commerce clause of the U.S. Constitution to allow a state to favor its local industries and discriminate against out-of-state businesses. Chapter 5—Government Regulation of Competition and Prices TRUE/FALSE 1. The government can regulate not just businesses, but also business competition and prices. Answer: True 2. State governments may regulate business in all of its aspects, even if such regulation imposes a burden on interstate commerce. Answer: False 3. The federal government may regulate any area of business to advance the nation’s economic needs. Answer: True 4. Governments may regulate prices but not credit terms. Answer: False 5. Each of the states and the federal government have statutes and regulations that prohibit unfair methods of competition. Answer: True 6. The Federal Trade Commission administers the law prohibiting unfair methods of competition. Answer: True 7. An agreement between real estate brokers to never charge a commission less than 6% is not an example of price fixing. Answer: False 8. The Sherman Act applies only to buying and selling activities, not manufacturing and production activities. Answer: False 9. Having a large percentage of the market is not necessarily a monopoly. Answer: True 10. Boycotts are always illegal, even when done with good intentions. Answer: True 11. Under the Sherman Act competitors are permitted to agree not to deal with certain buyers. Answer: False 12. A divestiture order is a decree ordering a defendant to dispose of excessive ownership or control of interests in competing enterprises. Answer: True 13. When large-size enterprises plan to merge, they must give written notice to the Interstate Commerce Commission. Answer: False 14. The Clayton Act prohibits price discrimination between different buyers of like commodities when the effect may be to substantially lessen competition. Answer: True 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. Answer: False 16. A state may prohibit a seller from selling below cost if the purpose is to harm competitors. Answer: True 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. Answer: True 18. Price discrimination is not permitted even when it can be justified on the basis of a difference in grade, quality, or quantity. Answer: False 19. The Robinson-Patman Act guarantees a seller the right to refuse to deal with anyone for any reason or purpose. Answer: False 20. A manufacturer having a restriction on territories in the form of a sole outlet is a per se violation. Answer: False 21. A “suggested retail price” is not a violation of the antitrust laws. Answer: True 22. Requiring buyers to purchase one product in order to get another is acceptable practice and not a violation of the Sherman Act. Answer: False 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. Answer: True 24. Criminal penalties are possible under the Sherman Act. Answer: True 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. Answer: False 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. Answer: True 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. Answer: C 2. Unfair competition is controlled by: A. statutes. B. administrative agencies. C. administrative regulations. D. all of the above. Answer: D 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. Answer: D 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. Answer: B 5. __________ power relates to a firm’s ability to control price and exclude competitors. A. Market B. Competitive C. Product D. Production Answer: A 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. Answer: B 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 Answer: C 8. The Sherman Act applies to: A. buying activities. B. selling activities. C. production activities. D. all of the above. Answer: D 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. Answer: B 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. Answer: C 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. Answer: D 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. Answer: D 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. Answer: A 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. Answer: C 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. Answer: B 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. Answer: C 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. Answer: A 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. Answer: B 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. Answer: D 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. Answer: 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. 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. Answer: 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. 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. Answer: 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. Test Bank for Business Law: Principles for Today's Commercial Environment David P. Twomey, Marianne M. Jennings 9781133588245, 9781305575158, 9780324786699
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