Chapter 28: Government Regulation of Business 175

Chapter 28: Government Regulation of Business 175

CHAPTER 28

Government Regulation of Business

KEY POINTS IN THE CHAPTER

· Both the state and federal governments regulate business to maintain competition and to protect the rights of consumers, employees, and stockholders.

· A state’s power to regulate business is concerned with intrastate commerce, while the federal government’s power, derived from the U.S. Constitution, is concerned with interstate commerce.

· Certain businesses, such as public utilities, enjoy monopoly status because their services are so crucial to the public. They are subject to greater than normal regulation, involving advertising and price controls.

· One of the most heavily regulated industries in the United States is the securities industry. Federal acts, designed to protect buyers of securities, regulate the sale and transfer of securities to prevent fraud and misrepresentation.

· Regulations are of little use unless they can be enforced. Administrative agencies, the courts, and public opinion all enforce government regulations. The methods include fines, injunctions, revocation of licenses to operate, and civil lawsuits.

MULTIPLE-CHOICE QUESTIONS

Circle the letter of the best answer.

1. Government regulation of business is designed to protect

a. consumers.

b. employees.

c. stockholders.

d. all of these.

2. The basic power of governments to regulate business is called the

a. commerce power.

b. police power.

c. regulatory power.

d. public power.

3. Business activity that is conducted solely within the boundaries of a state is called

a. domestic commerce.

b. interstate commerce.

c. intrastate commerce.

d. foreign commerce.

4. The power to regulate interstate commerce comes from

a. the individual states.

b. the U.S. Constitution.

c. local governments.

d. the United Nations Charter.

5. Antitrust regulation at the federal level is based on the

a. Sherman Act.

b. Jackson Act.

c. Nixon Act.

d. Reagan Act.

6. The Federal Trade Commission Act of 1914 prohibits

a. monopolies.

b. mergers.

c. price discrimination.

d. unfair competition.

7. The antitrust laws apply to all the following organizations except

a. labor unions.

b. railroads.

c. steel companies.

d. lumber companies.

8. Most governmental regulations of business are enforced by

a. the police.

b. local government.

c. administrative agencies.

d. the U.S. Congress.

9. The sale and trading of securities is regulated by the

a. Federal Reserve Board.

b. New York Stock Exchange.

c. Securities and Exchange Commission.

d. Bank of the United States.

10. Laws prohibiting the sale of certain products on certain days of the week are called

a. sunshine laws.

b. closing laws.

c. common laws.

d. Sunday laws.

11. Federal legislation prohibiting practices that lessen competition is known as

a. The Sherman Act.

b. The First Trade Act.

c. The Miller-Tydings Act.

d. The Carter-Glass Act.

12. Competitors who divide a market among themselves to lessen competition are engaging in an illegal restraint of trade known as

a. a tying agreement.

b. market allocation.

c. an exclusive dealing arrangement.

d. a monopoly.

SHORT-ANSWER QUESTIONS

Answer each of the following questions in the space provided.

1. List five important areas in which government regulates business to protect the public.

______

2. Administrative agencies have legislative, executive, and judicial powers. Give a brief explanation of each type of power.

______

3. List the basic terms of a standard franchise agreement.

______

CASE PROBLEMS

Read the case problems below and then state which agency or agencies you would consult for help in each situation.

1. You operate a retail store selling musical instruments. A large chain store that also sells musical instruments opens for business a few blocks from your store. The owners of that store spread a rumor that your pianos are made of inferior materials and will not last more than six months.

Agency:

2. You work for a machine tool company and operate a lathe. It is common practice for employers to provide employees with safety glasses to prevent injury caused by pieces of metal thrown from the machines. Your employer, however, refuses to provide you with this type of safety equipment.

Agency:

3. You buy 50,000 shares of stock in a uranium mining company and then discover that the company did not disclose the fact that uranium has never been found in the area in which the company plans to do business. You want to return the stock and get your money back, but the company refuses.

Agency:

4. You are the chairperson of the federal agency that is responsible for protecting those who borrow money from banks. You learn that a certain bank has been charging its borrowers an interest rate that is double the maximum permitted by federal law.

Agency:

5. You live in a city in which there are four TV stations. One company purchases all four stations and broadcasts the same news on all the stations. You feel that the public interest is not being served by this monopolistic practice.

Agency:

6. You live in a residential area that is zoned for one-family houses. A local manufacturer buys the three homes next to yours and announces that it plans to demolish them and build a factory.

Agency:

7. You go to a doctor for treatment of a skin condition. Two weeks later you discover that your doctor never graduated from medical school and is not licensed to practice medicine in your state.

Agency:

8. You apply for telephone service and are advised that a $200 deposit is required before you can obtain service. You believe that the deposit is excessive and unfair, but the phone company refuses to provide you with service unless you pay the deposit.

Agency:

9. Your local television station broadcasts programs that you feel are not appropriate for viewing by minors.

Agency:

10. Your bank refuses to cash your checks unless you pay a fee of $5.00 per check, even though you have an account at that bank.

Agency:

11. You discover that an industrial plant in your area is dumping toxic waste into a nearby stream.

Agency: