Chapter 4—Legal, Regulatory, and Political Issues
MULTIPLE CHOICE
1. In the United States, the major role that society delegates to government is to
a.
keep prices of products low so that all consumers can purchase convenience and luxury
goods.
b.
create more jobs.
c.
encourage larger companies to conduct business in many other countries.
d.
provide laws based on the Constitution and Bill of Rights and enforce those laws through
the judicial system.
e.
encourage competition by providing economic support to smaller companies in order to be
competitive with powerful companies.
2. Because no government system is perfect,
a.
legal and regulatory systems are constantly evolving and changing in response to social
institutions, including business.
b.
the “invisible hand of competition” has replaced many business and economic regulations.
c.
companies do not have to worry about meeting every law and regulation, since they are
likely to change.
d.
self-regulatory mechanisms have created less of a need for government oversight.
e.
the costs of business regulation have decreased.
3. When just one business provides a good or service in a particular market, what results?
a.
Monopoly
b.
Lower prices due to that company’s efficiency
c.
Oligopoly
d.
Trust
e.
Deregulation
4. Which of the following is least likely to be considered destructive or unfair competition?
a.
Collaborating with a competitor to establish prices so that each firm can ensure a certain
level of profit
b.
Obtaining information through ethical competitive intelligence practices
c.
Using a “bait and switch” method for selling products to customers
d.
Lowering prices significantly in an effort to drive competitors out of a market, and then
raising prices afterwards
e.
Stealing competitors’ trade secrets
5. Environmental regulations for social reasons have been necessary because of which of the following?
a.
Most companies eagerly pay for the costs involved with protecting their environment
because they realize their future is closely linked with the future of the environment.
b.
Consumers have willingly footed the bill for the costs of protecting the environment
through paying higher prices for products and services.
c.
Companies have felt pressured to “voluntarily” pay for environmental protection acts
because they are afraid of the impact on their businesses if they are not viewed as
environmentally responsible organizations.
d.
Social reasons have led to regulations such as environmental protection and preservation
because, although most companies voluntarily take on these responsibilities, a few
companies have shirked their share of the responsibility.
e.
Social reasons have led to regulations such as environmental protection since most
companies are unwilling to pay for these costs voluntarily.
6. Which industry did Ralph Nader’s 1965 book criticize for ignoring consumers’ interests in pursuit of
increased profits?
a.
Pharmaceuticals
b.
Defense
c.
Food
d.
Automobile
e.
Toy
7. Which act is the principal tool employed by the federal government to prevent businesses from
restraining trade and monopolizing markets?
a.
Sherman Antitrust Act
b.
Clayton Antitrust Act
c.
Federal Trade Commission Act
d.
Anti-Monopoly Act
e.
Roosevelt Antitrust Act
8. What provisions did the Clayton Act include to clarify and expand upon the Sherman Antitrust Act?
a.
It created an organization to protect consumers and businesses from unfair competition.
b.
It limited mergers and acquisitions that have the potential to stifle competition.
c.
It provided specific exemptions to utility and other similar industries, which tend to have
natural monopolies due to the exorbitant costs involved with starting up.
d.
The Clayton Act actually made most of the provisions of the Sherman Antitrust Act null
and void rather than expanding on the earlier legislation.
e.
It specified that one person could be a member of only three boards of directors within the
same industry.
9. Which of the following is not a method that the Federal Trade Commission (FTC) uses to influence
business activities?
a.
The FTC can issue a formal complaint stating that a firm is in violation of the law.
b.
The FTC can issue a cease-and-desist order that requires a company to stop engaging in a
specified illegal behavior.
c.
The FTC can file criminal charges against companies that break antitrust laws.
d.
The FTC can seek civil penalties against an offending company.
e.
The FTC helps to resolve complaints and issues rulings on areas of emerging concern in
business.
10. When the maker of Doan’s pills made unproven claims that its product is more effective than other
pain relievers at alleviating back pain, it engaged in
a.
mergers and acquisitions.
b.
price discrimination.
c.
tying agreements.
d.
exclusive agreements.
e.
an unfair method of competition.
11. To prevent the problems that led to the 2008-2009 financial crisis from leading to future financial
crises, the Obama administration proposes legislation that would include all of the following except
a.
removing some of the Federal Trace Commission’s powers and creating a Consumer
Financial Protection Agency
b.
giving the Federal Reserve less power over the financial industry
c.
creating a Financial Services Oversight Council to identify and address key risks to the
financial industry
d.
establishing a new National Bank Supervisor to oversee federally chartered lenders
e.
new powers for the Securities and Exchange Commission to monitor credit rating
industries for objectivity
12. Administrative spending for federal regulatory agencies, which is used as a measurement of regulatory
costs, has
a.
decreased in recent years as more of the burden of regulation is shifted to the state
agencies.
b.
increased in recent years because states have been ineffective with their regulations and
the burden has shifted to federal agencies.
c.
decreased because companies have been much more responsible at self-regulation, and
less federal spending is needed.
d.
increased steadily over the years as the world of business has continued to grow and
become more complex.
e.
remained relatively steady throughout the past couple of decades.
13. To generate a measurement of the costs of regulation, economists generally classify regulations as
a.
safety-related or environment-related.
b.
ethical or legal.
c.
standardized or industry-specific.
d.
state or national.
e.
economic or social.
14. How could regulation on businesses result in a “hidden tax” to consumers?
a.
Businesses could pass regulatory costs on to their consumers in the form of higher prices.
b.
States could raise their sales taxes to compensate for higher regulatory costs.
c.
Consumers may have to pay for recycling products that have been used or disposed.
d.
Consumers may be required to pay large fees to have their garbage carried off to a landfill.
e.
Purchasing in larger quantities may actually become more expensive per unit than smaller
purchases.
15. Despite business concerns about the costs of regulations, the benefits include all of the following
except
a.
safer workplaces.
b.
safer products.
c.
fewer consumer complaints.
d.
equality in the workplace.
e.
a cleaner natural environment.
16. Which of the following best describes the Better Business Bureau (BBB)?
a.
The BBB is a self-regulatory association that helps resolve problems between businesses
and consumers.
b.
The BBB is a federal government agency that helps resolve problems between businesses
and consumers.
c.
The BBB is a state agency that helps resolve problems between businesses and consumers.
d.
The BBB is a published list of companies to avoid doing business with due to their poor
business practices.
e.
The BBB is a network of agencies that assesses financial penalties against unethical
businesses.
17. What is the main argument presented by proponents of complete deregulation?
a.
Regulations are simply too confusing.
b.
Less government intervention would allow business markets to work more effectively.
c.
Regulations hamper competition because they level the playing field.
d.
There are no benefits received from regulations, only enormous costs.
e.
Regulations lower prices to an unfair level that hinders firm profitability.
18. What effect did the 2008-2009 financial crisis have on the call for deregulation?
a.
The 2008-2009 financial crisis led the U.S. and other countries to increase pressure for
deregulation.
b.
The 2008-2009 financial crisis led the U.S. and other countries to give less attention to
regulatory issues.
c.
The 2008-2009 financial crisis led the U.S. and other countries to begin to begin to reverse
the deregulatory trend of the previous decades.
d.
The 2008-2009 financial crisis distanced the U.S. from other countries’ stance on
deregulation.
e.
The 2008-2009 financial crisis unified proponents and opponents of deregulation.
19. Self-regulation is an effort to
a.
develop industry standards for pricing.
b.
enhance governmental authority in overseeing business practice.
c.
train executives in ethics and leadership so they are more skilled in the workplace.
d.
decrease the role and status of the Better Business Bureau and similar organizations.
e.
demonstrate social responsibility and preclude further governmental regulation.
20. The process of working to persuade public and/or government officials to favor a particular position in
decision making is known as
a.
special-interest pleading.
b.
bribery.
c.
lobbying.
d.
influencing.
e.
PAC.
21. The Pet Food Institute, the Tobacco Institute, and the American Booksellers Association are all
examples of
a.
umbrella organizations.
b.
trade associations.
c.
special-interest groups.
d.
PACs.
e.
trade unions.
22. Which of the following best describes how businesses should manage the regulatory environment?
a.
Top managers must take responsibility and be accountable for assessing legal risks and
developing corporate programs that promote and reward acceptable conduct.
b.
Businesses should try to follow all of the laws that apply to doing business and should also
consider the economic implications of their actions.
c.
Companies should maintain their primary focus of making a profit, and then try to operate
in the regulatory environment.
d.
Businesses should hesitate to punish employees who have committed an illegal or
unethical act in order to protect the reputation of the company.
e.
The company should hire a consulting group to deal with compliance with laws and
regulations since managers have more important matters to address.
23. Which of the following is not one of the steps delineated by the United States Sentencing Commission
to demonstrate the existence of an effective compliance program?
a.
Establish a code of conduct that communicates the expected standards
b.
Institute an ethics training program and communication system
c.
Enforce the policies, and discipline the violators
d.
Modify the program to prevent future similar offenses
e.
Develop a well-staffed internal ethics office to handle any reports of misconduct
24. The Sarbanes-Oxley Act was enacted to
a.
extend the provisions of the Clayton Act.
b.
restore stakeholder confidence and provide a new standard of ethical behavior for
business.
c.
determine the scope of punishments for executives at Enron and WorldCom.
d.
eliminate the need for the Federal Sentencing Guidelines for Organizations.
e.
reduce most white-collar crime to misdemeanors.
ESSAY
25. What are the social reasons for regulation? What are the economic reasons for regulation?
26. What new issues of consumer and business protection have arisen from the increasing use of the
Internet and other technology?
27. What additional legal issues must a company contend with when it engages in commerce beyond its
own borders?
28. What advantages does self-regulation have over government regulations? Are there ways in which
government regulations are superior? Explain.
29. Describe the changes in the political system and the resulting rise of special-interest groups.
30. What are some ways that businesses can influence the government?
31. How can a strong compliance program act as a buffer to keep employees from committing crimes and
protect the company’s reputation? What are the key elements of the program?
32. Why did Congress enact the Sarbanes-Oxley Act? What are the major provisions and benefits of the
Act?
33. What effect did the 2008-2009 financial crisis have on the Sarbanes-Oxley Act?