39) Billy Bob’s swamp racers are the fastest swamp mud racing machines in the country.
Unfortunately drivers have to be careful because they are easily tipped over due to their high
center of gravity. This is unfortunate because most swamp mud racers consider stability an
important quality in their racers. Billy Bob has installed numerous decals in prominent places
that state, “This sucker turns over easily but goes really fast.” Still, Billy Bob could be sued for
product liability under:
A) negligent manufacturing.
B) failure to warn.
C) implied warranty to perform.
D) negligent design.
Topic: Sales Warranties and Product Liability
AACSB: Reflective Thinking
40) When Fred Goodman sued Wendy’s over his broken tooth due to bone fragments in his
hamburger, he sued them on the basis of:
A) breach of implied warranty of merchantability.
B) negligent manufacturing.
C) failure to warn and negligent design.
D) implied warranty of fitness.
Topic: Sales Warranties and Product Liability
AACSB: Reflective Thinking
41) We Love Pets manufactures a pet carrier that is known to suddenly come apart if the pet
shakes itself at the same time the owner picks the carrier up. It seems the combination of actions
make the hinge pins fall out. WLP could be liable under:
A) negligent manufacturing.
B) failure to warn.
C) implied warranty to perform.
D) negligent design.
Topic: Sales Warranties and Product Liability
AACSB: Reflective Thinking
11
42) A ________ is a grant giving the inventor of a product the exclusive right to make, use, or
sell it for a specific time.
A) patent
C) trademark
D) warranty
Topic: Protection of Intellectual Property Rights
AACSB: Analytic Skills
43) The first step in receiving a patent for the invention is to:
A) document the device.
B) search existing patents.
C) establish the invention’s novelty.
D) prove the origination of the idea.
Topic: Protection of Intellectual Property Rights
AACSB: Analytic Skills
44) A ________ is any distinctive work, symbol, name, logo, etc., that a company uses to
identify the origin of a product or to distinguish it from other products.
A) patent
C) trademark
D) warranty
Topic: Trademarks
AACSB: Analytic Skills
45) The duration of a ________ is indefinite but can be lost if it loses its unique character.
A) patent
C) trademark
D) warranty
Topic: Trademarks
AACSB: Analytic Skills
12
46) The author of a hit song could apply for a ________ to protect that work from unauthorized
use by others.
A) patent
B) trademark
C) servicemark
AACSB: Analytic Skills
47) An agent’s duties when executing agency include:
A) reimbursement of the principal for all expenses incurred in the execution of the agency.
B) indemnification of the principal for any authorized payments or any loss incurred by the
agency.
C) performance of duties according to the principal’s instruction and notification of the principal
of all facts concerning the subject matter of the agency.
D) All of the above
Topic: The Law of Agency
AACSB: Analytic Skills
48) ________ is the most common type of bankruptcy, accounting for nearly 70% of all
bankruptcies.
A) Chapter 7
B) Chapter 11
C) Chapter 13
D) Chapter 21
Topic: Forms of Bankruptcy
AACSB: Analytic Skills
49) In a Chapter 7 bankruptcy:
A) a small firm gets a second chance by being protected from creditors while a reorganization
plan is formulated.
B) every piece of property the bankrupt debtor owns is subject to court attachment.
C) loss is limited to $100,000 in unsecured debt and to $350,000 in secured debt.
D) a debtor simply declares all of his firm’s debts, and turns all assets over to a trustee who then
sells and distributes them to settle both secured and unsecured debts.
Topic: Forms of Bankruptcy
AACSB: Analytic Skills
13
50) A ________ bankruptcy provides a small firm a second chance; it protects a firm from
creditors while a reorganization plan is formulated.
A) Chapter 7
B) Chapter 11
C) Chapter 13
D) Chapter 21
Topic: Forms of Bankruptcy
AACSB: Analytic Skills
51) A Chapter 11 filing can be
A) involuntary.
B) voluntary.
C) Both A and B
D) None of the above
Topic: Forms of Bankruptcy
AACSB: Reflective Thinking
52) The act that is the foundation on which antitrust policy in the United States is built is:
A) the Clayton Act.
B) the Sherman Anti-Trust Act.
C) the Robinson-Patman Act.
D) the Miller-Tydings Act.
Topic: Trade Practices
AACSB: Analytic Skills
53) The ________ forbids contracts that restrain trade or create monopolies.
A) Clayton Act
B) Sherman Anti-Trust Act
C) Robinson-Patman Act
D) Miller-Tydings Act
Topic: Trade Practices
AACSB: Analytic Skills
14
54) ________ states that a seller cannot require a buyer to purchase only his/her product to the
exclusion of other competitive sellers’ products.
A) The Clayton Act
B) The Sherman Act
C) The Robinson-Patman Act
D) The Miller-Tydings Act
Topic: Trade Practices
AACSB: Analytic Skills
55) The Clayton Act prohibits:
A) fair trade agreements.
B) sales contracts and warranties.
C) any corporation purchasing the stock of another corporation.
D) interlocking directorates.
Topic: Trade Practices
AACSB: Analytic Skills
56) This act was passed by Congress to supplement the Clayton Act, providing the power to
prevent “unfair methods of competition in commerce or unfair or deceptive acts in commerce.”
A) The Federal Trade Commission Act
B) The Sherman Act
C) The Robinson-Patman Act
D) The Miller-Tydings Act
Topic: Trade Practices
AACSB: Analytic Skills
57) ________ was passed to strengthen the Clayton Act, specifically to address price
discrimination because many businesses were circumventing the original rules.
A) The Federal Trade Commission Act
B) The Sherman Act
C) The Robinson-Patman Act
D) The Miller-Tydings Act
Topic: Trade Practices
AACSB: Analytic Skills
15
58) The Robinson-Patman Act focuses on:
A) price discrimination.
B) product warranty.
C) product liability.
D) unsafe products.
Topic: Trade Practices
AACSB: Analytic Skills
59) The FTC forbade the practice of:
A) interlocking directorates.
B) mergers.
C) acquisitions.
D) price discrimination.
Topic: Trade Practices
AACSB: Analytic Skills
60) In 1938, Congress passed the ________ creating an agency responsible for establishing
standards for drugs, inspecting food and drug manufacturers, performing food-and drug-related
research, etc.
A) Miller-Tydings Act
B) Consumer Product Safety Act
C) Agricultural Marketing Act
D) Food, Drug, and Cosmetics Act
Topic: Consumer Protection
AACSB: Analytic Skills
61) The ________ requires lenders and sellers who extend credit to disclose fully the terms and
conditions of credit arrangements to enable consumers to “shop around.”
A) Fair Credit Reporting Act
B) Truth-In-Lending Act
C) Consumer Product Safety Commission
D) Equal Credit Opportunity Act
Topic: Consumer Credit
AACSB: Analytic Skills
16
62) The Truth-In-Lending Act:
A) applies to all installment contracts with more than two payments.
B) prohibits discrimination in granting credit.
C) requires a lender to disclose the total cost of credit or a loan.
D) prohibits certain behavior on the part of a lender when trying to collect bad debts.
Topic: Consumer Credit
AACSB: Analytic Skills
63) Under the Truth-In-Lending Act, the owner of a stolen credit card who notifies the credit
card company of the theft before any unauthorized use of the card is liable for:
A) none of the unauthorized charges.
B) only $50 of any unauthorized charges.
C) a total of $100.
D) all of the charges. The owner has unlimited liability.
Topic: Consumer Credit
AACSB: Analytic Skills
64) It is possible for a small business to win a lawsuit but still go out of business due to the costs
of the suit.
Topic: Laws of Contract
AACSB: Analytic Skills
65) A contract is simply a promise or set of promises regarding a duty and for which there is a
remedy if the agreement is breached.
Topic: Laws of Contract
AACSB: Analytic Skills
66) Courts judge a party’s subjective, personal intentions to enter into a contract when a dispute
about a contract’s existence arises.
Topic: Laws of Contract
AACSB: Analytic Skills
17
67) The more terms that are specified in a proposed offer, the more likely it is that an offer exists.
Topic: Laws of Contract
AACSB: Analytic Skills
68) A missing quantity term in an offer usually defeats a contract.
Topic: Laws of Contract
AACSB: Analytic Skills
69) Common law requires that an acceptance of an offer be made by the means specified by the
offeror and it must reach the offeror in order to be effective.
Topic: Laws of Contract
AACSB: Analytic Skills
70) Generally, the absence of consideration does not affect the obligation, i.e., the contract is still
binding, even if there’s no apparent consideration.
Topic: Laws of Contract
AACSB: Analytic Skills
71) If two parties exchange promises to form a contract, valuable consideration exists.
Topic: Laws of Contract
AACSB: Analytic Skills
72) A minor can void a contract at the minor’s option but the adult cannot void a contract simply
because it is with a minor.
Topic: Laws of Contract
AACSB: Analytic Skills
73) The courts hold that a contract entered into by an intoxicated person or an insane person is
always voidable.
Topic: Laws of Contract
AACSB: Analytic Skills
74) For a contract to be enforceable, it must be legal.
18
Topic: Laws of Contract
AACSB: Analytic Skills
75) Only mistakes of fact permit a contract to be voided.
Topic: Laws of Contract
AACSB: Analytic Skills
76) In the 1950s, a group of legal scholars compiled the Uniform Commercial Code to replace
the hodge-podge collection of confusing, often conflicting state laws that government basic
commercial transactions with a document designed to provide uniformity and consistency.
Topic: The Uniform Commercial Code
AACSB: Analytic Skills
77) To be enforceable, a contract must be written.
Topic: Breach of Contract
AACSB: Analytic Skills
78) Failure to perform as agreed in a contract constitutes breach.
Topic: Breach of Contract
AACSB: Analytic Skills
79) In breach of contract, the injured party may only recover compensatory damages, moneys
which place him/her in the same position he/she would have been had the contract been
performed.
Topic: Breach of Contract
AACSB: Analytic Skills
80) The Uniform Commercial Code has been adopted, at least in part, by all 50 states.
Topic: The Uniform Commercial Code
AACSB: Analytic Skills
19
81) The Code does not cover contracts for the sale of services.
Topic: The Uniform Commercial Code
AACSB: Analytic Skills
82) Under the UCC, a person is considered a professional merchant if he/she “deals in goods of
the kind” and has a special knowledge of the business or of the goods, uses a merchant’s agent to
conduct business, or presents him/herself as a merchant.
Topic: The Uniform Commercial Code
AACSB: Analytic Skills
83) Under the Code, as long as an offeree’s response indicates a sincere willingness to accept, it
will be an acceptance although the terms of the acceptance may be somewhat different.
Topic: The Uniform Commercial Code
AACSB: Analytic Skills
84) Under the Code, a new consideration is required if an existing contract is modified.
Topic: The Uniform Commercial Code
AACSB: Analytic Skills
85) Under the UCC, delivery of goods does not necessarily mean physical delivery, but simply
making the goods available to the buyer.
Topic: Sales and Sales Contracts
AACSB: Analytic Skills
86) The buyer must indicate acceptance of goods verbally or in writing for the acceptance to be
binding.
Topic: Sales and Sales Contracts
AACSB: Analytic Skills
87) The legal remedies for breach of contract are designed to put the nonbreaching party in the
same position as if the contract had been carried out.
Topic: Breach of Sales Contracts
AACSB: Analytic Skills
20