Test Bank for Law Business and Society 12th Edition By McAdams

Test Bank for Law Business and Society 12th Edition

By McAdams

To download the complete and accurate content document, go to:

https://testbankbell.com/download/test-bank-for-law-business-and-society-12th-editio
n-by-mcadams/

Visit TestBankBell.com to get complete for all chapters

Student name:__________
TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) The government will not intervene to thwart anticompetitive behaviors throughout the
marketplace.

⊚ true
⊚ false

2) Adhering to free market principles, the government is reluctant to thwart anticompetitive

behaviors in the marketplace.

⊚ true
⊚ false

3) When all the costs and benefits of a good or service are not fully internalized or absorbed
by producers or consumers, those costs or benefits fall elsewhere as externalities.

⊚ true
⊚ false

4) When a business does not realize all of the benefits of its decision, this situation is known
as a positive externality.

⊚ true
⊚ false

5) The Commerce Clause of the U.S. Constitution broadly specifies the power accorded to
the federal government to regulate business activity.

⊚ true
⊚ false

6) Optimal efficiency often demands one uniform federal rule rather than a patchwork of 50
state rules.

⊚ true
⊚ false

Version 1 1
7) The U.S. Constitution expressly forbids state regulation of interstate commerce.

⊚ true
⊚ false

8) The right of the state governments to promote the public health, safety, morals, and
general welfare is known as police power.

⊚ true
⊚ false

9) The federal government may regulate only interstate commerce regardless of the effect
that purely intrastate commerce may have on interstate commerce.

⊚ true
⊚ false

10) Congress has the exclusive discretion over foreign commerce according to the judiciary’s
interpretation of the Commerce Clause.

⊚ true
⊚ false

11) In the event of an irreconcilable conflict between federal and state law, the Supremacy
Clause provides that federal law will preempt state or local law rendering it unconstitutional.

⊚ true
⊚ false

12) States cannot regulate the insurance industry as it is solely a federal responsibility.

⊚ true
⊚ false

Version 1 2
13) Local government intervention in business may only involve taxes.

⊚ true
⊚ false

14) Administrative law principles are generally applicable to the conduct of state and local
governments.

⊚ true
⊚ false

15) Agency commissioners are appointed in staggered terms.

⊚ true
⊚ false

16) Administrative agencies act as mini governments, performing quasi executive, legislative,
and judicial roles.

⊚ true
⊚ false

17) Adjudication ordinarily involves standards to be applied to the future conduct of a class
of unspecified parties.

⊚ true
⊚ false

18) The president controls agency budgets and thus has tremendous power to encourage or
discourage particular agency action.

⊚ true
⊚ false

19) Federal agency rules and orders cannot be challenged in court.

Version 1 3
 ⊚ true
⊚ false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
20) Which of the following would most likely be considered a positive externality?

A) The benefits that remain within the business

B) Favorable public opinion about the firm’s products
C) Benefits from a business’s decision that spill over to third parties
D) A pro-business regulation that decreases the requirements on the private sector

21) Economists have labeled _______ as those costs or benefits of a good or service that fall
elsewhere and are not fully internalized or absorbed.

A) neighborhood effects
B) monopolies
C) market effects
D) market failure

22) Today, attention in the monopoly area is largely directed to:

A) controlling the formation of foreign cartels that seek to interfere with interstate
commerce.
B) encouraging positive externalities.
C) preventing activities that undercut the virtues of the free market.
D) encouraging negative externalities.

23) Public goods include which of the following?

Version 1 4
 A) Those goods that can be provided to all consumers through a free market
unencumbered by anticompetitive behavior.
B) Those goods that can be excluded from people who choose not to pay for them.
C) Those goods that can be produced in adequate quantities to benefit the general
welfare of the public.
D) Those goods for which the added cost of benefiting one person is zero or nearly so.

24) The use, cultivation, or possession of marijuana for any purpose is forbidden by which of
the following acts?

A) The Controlled Substances Act

B) The Cannabis Control Act
C) The Food and Drug Act
D) The Angel Raich Act

25) Which of the following ended Prohibition in 1933 and gave the states broad authority to
regulate the sale of alcohol?

A) The Fifth Amendment

B) The Eighteenth Amendment
C) The Twenty-First Amendment
D) The Fourteenth Amendment

26) Which of the following is an example of the federal government exceeding its authority
in regulating commerce?

A) Regulating railroad routes and rates

B) Prohibiting indecent materials on regular broadcast television between 6 am and 10
pm
C) Forcing most Americans to maintain "minimum essential" health insurance
D) Specifying standards of safety and health in industry

Version 1 5
27) All of the following statements are true of licensure except which of the following?

A) It is alleged that Increased prices and decreased services result from licensure.
B) It is intended to safeguard the public from unsafe and substandard goods and
services.
C) It is used by the federal government to intervene in business.
D) It is criticized as being designed to block the entry of competitors.

28) The Interstate Commerce Commission was the first federal regulatory agency that
Congress established in 1887 for the purpose of

A) regulating railroad routes and rates.

B) regulating interstate commerce.
C) regulating intrastate commerce.
D) regulating the burgeoning agriculture market.

29) Which of the following statements is true of independent federal agencies?

A) They are usually the departments of the government’s executive branch.

B) They are not vested with substantial legislation so as to prevent autonomy.
C) They are created via statutes labeled enabling legislation.
D) They are created to delegate a portion of their authority to Congress.

30) Identify the correct statement about a federal agency.

Version 1 6
 A) All federal agencies were created to be under the direct control of the president.
B) In a rule-making situation, a federal agency uses independent written comments to
establish its regulations.
C) In creating a federal agency, Congress delegates a portion of its authority to that
body.
D) Federal agencies have the authority to control the production of certain economic
activities.

31) Which of the following served as the basis for the creation of a fourth branch of
government by Congress?

A) Agency commissioners are appointed to life terms which relieves them from political
pressure.
B) The executive agencies are needed to protect the public welfare.
C) The use of enabling legislation allows Congress to cede all control to the agency.
D) Congress does not have the expertise to handle certain issues.

32) The primary purpose of most of the early agencies was to address

A) product safety issues.

B) economic concerns.
C) discrimination issues.
D) environmental concerns.

33) Which of the following statements is true of federal agencies?

A) The executive federal agencies are empowered by enabling legislation.

B) The president has direct authority over the executive federal agencies.
C) Federal agencies derive their power through procedural rules established by
Congress.
D) All federal agencies are created to regulate specified segments of American life.

Version 1 7
34) The _____ was enacted to provide a framework for agency rule-making and to detail
broad standards for judicial review of agency decisions.

A) Administrative Procedure Act

B) Regulatory Authority Act
C) Uniform Agency Act
D) Public Records Act

35) Which of the following is an example of the federal regulatory authority of control of
information?

A) Preventing the entry of certain products into the market

B) Directing that warning labels be stuck on products
C) Uniform pricing of cable TV services
D) Establishing minimum standards that the private sector must meet

36) CartMed Inc., an over-the-counter (OTC) drug manufacturer, is directed by the Office of
National Drug Control Policy (ONDCP) to refrain from manufacturing cough syrups that exceed
22 percent alcohol content for children below the age of ten. This authority of the ONDCP falls
under which of the following federal regulatory categories?

A) Control of cost
B) Control of information
C) Control of rates
D) Control of standards

37) Which of the following rules offer an administrative agency’s view of the meaning of
those statutes for which the agency has administrative responsibility?

Version 1 8
 A) Substantive rules
B) Legislative rules
C) Procedural rules
D) Interpretive rules

38) Federal agencies have all but which of the following executive functions?

A) Creating rules that, in effect, are laws.

B) Conducting inspections and investigations and collecting information
C) Ensuring compliance with laws and regulations
D) Hearing and settling workers’ compensation claims

39) Which of the following is an example of an executive function performed by a federal

agency?

A) Regulating internal revenue service

B) Enacting procedural rules
C) Leasing federal lands
D) Publishing all federal rules and orders daily

40) Which of the following statements relates to legislative rules?

A) They define rights and duties, such as crimes and punishments, and civil rights and
responsibilities.
B) They impose new duties on affected parties and have the effect of law.
C) They delineate a federal agency's internal operating structure and methods.
D) They offer a federal agency's view of the meaning of those statutes for which the
agency has administrative responsibility.

Version 1 9
41) The National Highway Traffic Safety Administration recently issued a rule requiring all
new vehicles under 10,000 pounds to have rear visibility technology (typically, backup cameras)
by 2018. This rule is an example of an agency’s application of its _____ rules.

A) procedural
B) legislative
C) interpretive
D) substantive

42) Internal Revenue Service regulations are an example of _____ rules.

A) judicial
B) legislative
C) interpretative
D) procedural

43) Which of the following statements is true of rule-making by agencies?

A) Agencies create rules that resemble laws but do not have the force of laws.
B) Informal rule-making requires a public hearing after notice of the hearing is given.
C) The APA specifically provides for formal, informal, and hybrid rule-making.
D) The federal government provides an online portal where the public can comment on
proposed rules.

44) Which of the following statements is true of judicial review of agency rules?

A) Review of controversial, high visibility rules issued by agencies is not common.

B) Courts take a broad approach to judicial review of cases challenging agency rules.
C) Courts cannot overrule the agencies' interpretation of a rule.
D) Judges readily sustain the judgment of the agency where reasonable.

Version 1 10
45) Which of the following statements is true of the Federal Communications Commission's
(FCC) indecency rules?

A) FCC rules increase the prices of cable TV services that broadcast indecent material.
B) FCC rules forbid indecent material on conventional broadcast services when children
are likely to be in the audience.
C) FCC rules forbid indecent material on cable networks between 6 pm and 10 am.
D) FCC rules apply to subscription services such as programming delivered via satellite.

46) The excessive regulation argument posits that government rules do all but which of the
following?

A) Encourage innovation
B) Impose high compliance costs
C) Curb freedom
D) Limit business efficiency

47) Since the late 1970s, the United States has been in a period of deregulation during which
all of the following has occurred except

A) federal agencies that dealt with energy, transportation, and telecommunications were
eliminated.
B) prices often decreased and innovation often increased.
C) tightly controlled industries were substantially returned to market forces.
D) great efforts were made to reduce government’s role in large portions of American
life.

48) Judicial review of agency decisions turn on technical issues of law such as:

Version 1 11
 A) Did Congress cede too much of its authority to the agency?
B) Were the agency’s findings of fact supported by substantial evidence from the record
as a whole?
C) Did the president exercise too much control over the independent agency’s internal
affairs?
D) Do the courts have the power to overrule an agency’s interpretive rules?

49) With regard to the federal regulatory process, free-market activists want to do which of
the following?

A) Allow the government to prevent and correct market failure

B) Permit the government to intervene in matters such as education and energy policy
C) Reduce government’s ability to prevent and correct market failure
D) Increase deregulation by sharply reducing government

50) Which of the following is an example of the many successes of government intervention
through regulation?

A) Decreased discrimination against minorities and women in the public sector

B) Safer workplaces
C) Greatly diminished migrant farm labor
D) Reduction in airfare

51) Control of _____ is one of the three broad categories of federal regulatory authority.

A) Entry
B) Regulations
C) Externalities
D) Conduct

Version 1 12
52) State governments have rule-making authority over public utilities (gas, electricity,
sewage disposal) in all of the following areas except

A) customer service.
B) setting rates for that utility.
C) entry into the market.
D) annual shareholder meetings.

ESSAY. Write your answer in the space provided or on a separate sheet of paper.
53) When is government intervention in a free enterprise economy justified? Explain any two
rationales for the need of government regulation.

54) In the context of political process, what are the three main arguments that have emerged
regarding market regulation by the government?

55) Why are the Commerce Clause and states’ police power potentially in conflict?

Version 1 13
56) Explain the difference between state and local regulation in the context of their impact on
business practices.

57) Describe the three broad categories of the federal regulatory agencies’ authority.

58) Differentiate among the three types of rules enacted by administrative agencies. Describe
the formal and informal rule making process of an agency.

59) Elaborate on the executive and congressional constraints on agencies.

60) Describe the American economy during the time of deregulation. Highlight the excessive
regulation argument and the biggest risk it posed.

Version 1 14
Version 1 15
Answer Key

Test name: McAdams 8

1) FALSE
The government intervenes to thwart anticompetitive behaviors
throughout the marketplace. Today, attention in the monopoly area is
largely directed to anticompetitive conduct such as price fixing and
abuse of market dominance that results in a reduction of open, efficient
competition.
2) FALSE
The government intervenes to thwart anticompetitive behaviors
throughout the marketplace. We are concerned that the efficiency and
fairness advantages of an open market will be compromised by large,
powerful players and by conspiracies among competitors.
3) TRUE
When all the costs and benefits of a good or service are not fully
internalized or absorbed by producers or consumers, those costs or
benefits fall elsewhere as what economists have labeled externalities,
neighborhood effects, or spillovers.
4) TRUE
Positive externalities are those in which a decision maker does not
receive the full benefit of a decision because a portion of those benefits
"spill over" on to third parties (often society at large) who were not
direct participants in the decision. In a negative externality, the
environment is used without charge as an ingredient in the production
process (commonly as a receptacle for waste).
5) TRUE

Version 1 16
The Commerce Clause of the U.S. Constitution broadly specifies the
power accorded to the federal government to regulate business activity.
Sometimes state or local law conflicts with federal law. Such situations
are resolved by the Supremacy Clause of the Constitution (Article VI,
paragraph 2), which provides that: ''This Constitution and the Laws of
the United States . . . shall be the Supreme Law of the Land.'' The
Commerce Clause of the U.S. Constitution broadly specifies the power
accorded to the federal government to regulate business activity.
6) TRUE
Optimal efficiency, especially for the business community, often
demands one uniform federal rule rather than a patchwork of 50 state
rules. On the other hand, state rules benefit from being enacted by
bodies very close to the people themselves.
7) FALSE
The U.S. Constitution does not expressly forbid state regulation of
interstate commerce. As with foreign commerce, the states and localities
pass laws to influence interstate commerce, often to favor local
economic interests.
8) TRUE
Police power refers to the right of the state governments to promote the
public health, safety, morals, and general welfare by regulating persons
and property within each state's jurisdiction. The states have, in turn,
delegated portions of the police power to local government units.
9) FALSE

Version 1 17
Purely intrastate activities can be regulated by the federal government if
these activities have a substantial effect on interstate commerce. Federal
authority over “commerce among the several states,” that is, interstate
commerce, affords the federal government very broad power to regulate
commercial activities across the United States. It was designed to create
an open, effectively borderless market throughout the nation, wherein
goods would move freely among the states, unimpeded by state and
local tariffs and duties. The tremendous powers of interstate commerce
regulation can be applied to intrastate commerce transactions on certain
occasions when the intrastate commercial activities have a substantial
effect on interstate commerce.
10) TRUE
The Commerce Clause, as interpreted by the judiciary, affords Congress
exclusive jurisdiction over foreign commerce. States and localities,
nevertheless, sometimes seek to regulate foreign commerce in various
ways. For example, a state may seek, directly or indirectly, to impose a
tax on foreign goods that compete with locally grown or manufactured
goods.
11) TRUE
In the event of an irreconcilable conflict between federal and state law,
the Supremacy Clause, as interpreted by the courts, provides that federal
law will preempt (supersede) state or local law rendering it
unconstitutional. In general, Supreme Court decisions have affirmed the
federal government's regulatory authority even when faced with
conflicting state rules.
12) FALSE

Version 1 18
The states are primarily responsible for regulating the insurance industry
and are heavily involved in regulating banking, securities, and liquor
sales. Many businesses and professions—from psychology to funeral
preparation to barbering to the practice of medicine—require a license
from the state.
13) FALSE
Local government intervention in business typically involves various
licensure requirements. Local regulation is much less economically
significant than state regulation.
14) TRUE
Administrative law principles are generally applicable to the conduct of
state and local governments. At the state level, public utility
commissions and the various state licensure boards for law, medicine,
architecture, and the like are examples of administrative agencies. At the
local level, one might cite planning and zoning boards and property tax
assessment appeals boards.
15) TRUE
Agency commissioners are appointed in staggered terms, typically of
seven years' duration. The appointment of commissioners for most of the
independent agencies must reflect an approximate political balance
between the two major parties.
16) TRUE

Version 1 19
The administrative agencies act as mini governments, performing quasi-
executive, quasi-legislative (rule-making), and quasi-judicial
(adjudicatory) roles broadly involving control of supply, rates, and
conduct in large segments of American life. Agency action is guided
generally by the 1946 Administrative Procedure Act (APA), which
Congress enacted to provide a framework for agency rule-making and to
detail broad standards for judicial review of agency decisions.
17) FALSE
An adjudication addresses specific parties involved in a specific present
or past dispute. Rule-making ordinarily involves standards to be applied
to the future conduct of a class of unspecified parties. Many issues
facing agencies could properly be resolved either by rule-making or by
adjudication.
18) FALSE
While the president has great influence in the budget process, Congress
controls agency budgets and thus can encourage or discourage particular
agency action. Congress can directly intervene by amending the
enabling legislation or by passing laws that require agencies to take
specific directions.
19) FALSE
Federal agency rules and orders may be challenged in court.
Historically, however, the courts have taken a rather narrow approach to
judicial review. The jurists, being generalists in the field of law, have
been reluctant to overrule the judgment of specialists, and very crowded
judicial calendars act as a natural brake on activist judicial review.
20) C

Version 1 20
Air and water pollution as a result of manufacturing process would most
likely be considered a negative externality for a manufacturing firm. The
environment is used without charge as an ingredient in the production
process (commonly as a receptacle for waste). Consequently, the product
is underpriced. The producer and consumer do not pay the full social
cost of the product, so those remaining costs are thrust on parties
external to the transaction.
21) A
When all the costs and benefits of a good or service are not fully
internalized or absorbed by producers or consumers, those costs or
benefits fall elsewhere as what economists have labeled externalities,
neighborhood effects, or spillovers. Pollution is a characteristic example
of a negative externality. Positive externalities are those in which a
decision maker does not receive the full benefit of a decision because a
portion of those benefits "spill over" on to third parties (often society at
large) who were not direct participants in the decision.
22) C
Today, attention in the monopoly area is largely directed to
anticompetitive conduct such as price fixing and abuse of market
dominance that results in a reduction of open, efficient competition. The
government intervenes to thwart anticompetitive behaviors throughout
the marketplace in an effort to promote the virtues of the free market.
23) D
Some goods and services cannot be provided through the pricing system
because we have no method for excluding those who choose not to pay.
The added cost of benefiting one person is zero or nearly so, and, in any
case, no one can effectively be denied the benefits of the activity. In the
absence of government regulations, public goods would not be produced
in adequate quantities.

Version 1 21
24) A
The federal Controlled Substances Act (CSA) forbids the use,
cultivation, or possession of marijuana for any purpose. However, nearly
half of the states have reduced their restraints on marijuana use, and in
states such as Washington and Colorado, voters have “legalized” adult,
recreational consumption of the drug.
25) C
The Twenty-First Amendment ended Prohibition in 1933 and gave the
states broad authority to regulate the sale of alcohol. The central
question facing the Court was the conflict between the requirements of
the Commerce Clause versus the requirements of the Twenty-First
Amendment to the U.S. Constitution.
26) C
In June 2012, the U.S. Supreme Court, by a 5–4 vote, upheld the
constitutionality of the Affordable Care Act (Obamacare), but the
decision raised further doubts about the federal government’s Commerce
Clause power. The core of the Supreme Court review of the Affordable
Care Act (Obamacare) involved what is called the “individual mandate”:
a requirement in the bill forcing most Americans to maintain “minimum
essential” health insurance. The Court ruled that the individual mandate
was a violation of the Commerce Clause, but it was upheld on other
grounds separate and distinct from commerce powers.
27) C
Local government intervention in business typically involves various
licensure requirements. Critics contend, however, that licensure is often
designed to block the entry of competitors and that the benefits of
licensure are exceeded by its costs in increased prices, decreased
services, and administrative overhead.

Version 1 22
28) A
In 1887, Congress established the Interstate Commerce Commission
(ICC), the first federal regulatory agency, for the purpose of regulating
railroad routes and rates. The Food and Drug Administration (FDA—
1907) and the Federal Trade Commission (FTC—1914) followed, but
federal regulation became pervasive only in response to the Great
Depression of the 1930s.
29) C
Congress created independent federal agencies via statutes labeled
enabling legislation. The president has direct authority over the
executive agencies while the independent agencies are intended to
operate with less fear of interference.
30) C
In creating a federal agency, Congress delegates a portion of its
authority to that body. The president, ordinarily with the advice and
consent of the Senate, appoints the administrator or the commissioners
who direct each agency’s affairs. Agencies use formal, informal, and
hybrid forms of rule-making. Certain agencies control entry into certain
economic activities.
31) D
In effect, Congress has created a fourth branch of government.
Possessing neither the time nor the expertise to handle issues arising
from nuclear power, product safety, racial discrimination, labor unions,
and much more, Congress wisely established “mini governments”
supported by the necessary technical resources and day-to-day authority
to address those complicated problems. The appointment of
commissioners for most of the independent agencies must reflect an
approximate political balance between the two major parties. In creating
an agency, Congress delegates a portion of its authority to that body.

Version 1 23
32) B
The primary purpose of most of the early agencies was to address
economic concerns. Then with the arrival of the prosperity and social
turbulence of the 1960s and 1970s, Congress built a rather massive array
of new agencies directed not to economic issues but to social reform in
such areas as discrimination, the environment, job safety, and product
safety.
33) B
The president has direct authority over the executive federal agencies
while the independent agencies are intended to operate with less fear of
interference. Congress created agencies via statutes labeled enabling
legislation and accorded them substantial authority to regulate a
specified segment of American life. In practice, the president and
Congress have substantial influence on all the agencies
34) A
The Administrative Procedure Act was enacted to provide a framework
for agency rule-making and to detail broad standards for judicial review
of agency decisions. Administrative agencies act as mini governments,
performing quasi-executive, quasi-legislative (rule-making), and quasi-
judicial (adjudicatory) roles broadly involving control of supply, rates,
and conduct in large segments of American life.
35) B
Requiring warning labels on products is an example of the federal
regulatory authority of control of information. Agencies commonly
compel companies to disclose consumer information that would
otherwise remain private.
36) D

Version 1 24
Agencies control standards of products where simply requiring
information is deemed inadequate for the public needs. The government
may establish minimum standards that the private sector must meet. In
this scenario, CartMed Inc. is required by the Office of National Drug
Control Policy (ONDCP) to refrain from producing cough syrups that
exceed 22 percent of alcohol content for children below the age of ten.
This requirement sets a standard to be followed.
37) D
Interpretive rules offer an administrative agency's view of the meaning
of those statutes for which the agency has administrative responsibility.
Internal Revenue Service regulations are an example of interpretive
rules.
38) A
A big part of the agencies’ executive duties is the protection of the
public by ensuring compliance with laws and regulations. Most
agencies, therefore, spend a great deal of time conducting inspections
and investigations and collecting information. Federal agencies perform
the executive function of resolving tax disputes. They enter into
contracts, lease federal lands, register securities offerings, award grants,
settle workers’ compensation claims, administer government benefits to
the citizenry, and so on.
39) C
Leasing federal lands is an example of an executive function performed
by a federal agency. Agencies enter into contracts, lease federal lands,
register securities offerings, award grants, resolve tax disputes, settle
workers' compensation claims, administer government benefits to the
citizenry, and so on.
40) B

Version 1 25
Agencies create rules that, in effect, are laws. These rules provide the
details necessary to carry out the intentions of the enabling legislation.
Procedural rules delineate a federal agency’s internal operating structure
and methods.
41) B
The National Highway Traffic Safety Administration recently issued a
rule requiring all new vehicles under 10,000 pounds to have rear
visibility technology (typically, backup cameras) by 2018 is an example
of an agency’s application of its legislative rules.
42) C
Internal Revenue Service regulations are an example of interpretive
rules. Interpretive rules offer the agency's view of the meaning of those
statutes for which the agency has administrative responsibility.
43) D
The federal government provides an online portal where the public can
comment on proposed rules. After receiving public comments, the
agency either discontinues the process for devising the new rule or
prepares the final rule.
44) D
Judges readily sustain the judgment of the agency where reasonable. The
jurists, being generalists in the field of law, have been reluctant to
overrule the judgment of specialists, and very crowded judicial calendars
act as a natural brake on activist judicial review.
45) B

Version 1 26
The Federal Communications Commission (FCC) rules forbid indecent
materials on conventional broadcast services between 6 am and 10 pm—
hours when children are likely to be in the audience. The rules do not
reach subscription services such as programming delivered via satellite
and cable services.
46) A
The excessive regulation argument is that government rules reduce
business efficiency, kill jobs, discourage innovation, impose high
compliance costs, and curb freedom while expanding the government
bureaucracy and the taxes/borrowing that fund it.
47) A
Since the late 1970s, the United States has been in a period of
deregulation during which great efforts were made to reduce the role of
government in big portions of American life. Once tightly controlled
industries, energy, transportation, and telecommunications were
substantially returned to market forces. The results often included lower
prices and increased innovation.
48) B
Judicial review of agency decisions raises a variety of technical issues of
law such as: 1) Does the legislature’s delegation of authority meet
constitutional requirements? 2) Has the agency exceeded the authority
granted by the enabling legislation? 3) Are the agency’s findings of fact
supported by substantial evidence in the record as a whole? 4) Was the
agency’s decision “arbitrary and capricious.”
49) D

Version 1 27
Free-market advocates want to sharply reduce government, while free-
market skeptics favor an activist government engaged in preventing and
correcting market failure. Federal authority continues to grow, and
conservative activists have angrily, sometimes violently, resisted what
they see as an overreaching government intruding in matters such as
education and energy policy better left to local communities and the
market.
50) B
Advocates of increased regulation point to the many successes of
government intervention: a vast highway network, legal equality for
minorities and women, cleaner air, safer workplaces, greatly diminished
child labor, enhanced auto safety, and so on.
51) D
The authority of federal agencies falls into three broad categories: 1)
Control of Supply - some agencies control entry into certain economic
activities; 2) Control of Rates -historically, those federal agencies
charged with regulating utilities and carriers set the prices to be charged
for the services offered within their jurisdictions, but the deregulation
movement has resulted in a general decline in agency rate-setting; and 3)
Control of Conduct - federal agencies may compel or restrict business
conduct.
52) D
Public utilities (gas, electricity, sewage disposal) are the subject of
extensive regulation governing entry, rates, customer service, and
virtually all of the companies’ activities. All states have some form of
public service commission charged with regulating utilities in the public
interest. Many states seek to directly enhance competition via antitrust
legislation.

Version 1 28
53) Government intervention in a free enterprise economy would be
justified only when the market is unable to serve the public interest—
that is, in instances of market failure. Market failure is attributed to
certain inherent imperfections in the market itself. Public goods: Some
goods and services cannot be provided through the pricing system
because we have no method for excluding those who choose not to pay.
For such public goods, the added cost of benefiting one person is zero or
nearly so, and, in any case, no one can effectively be denied the benefits
of the activity. National defense, insect eradication, and pollution control
are examples of this phenomenon. Presumably most individuals would
refuse to voluntarily pay for what others would receive free. Thus, in the
absence of government regulations, public goods would not be produced
in adequate quantities. Externalities: When all the costs and benefits of a
good or service are not fully internalized or absorbed, those costs or
benefits fall elsewhere as what economists have labeled externalities,
neighborhood effects, or spillovers. Pollution is a characteristic example
of a negative externality. The environment is used without charge as an
ingredient in the production process (commonly as a receptacle for
waste). Consequently, the product is underpriced. The producer and
consumer do not pay the full social cost of the product, so those
remaining costs are thrust on parties external to the transaction.
Government regulation is sometimes considered necessary to place the
full cost on those who generated it, which in turn is expected to result in
less wasteful use of resources. Positive externalities are those in which a
decision maker does not receive the full benefit of a decision because a
portion of those benefits “spill over” on to third parties (often society at
large) who were not direct participants in the decision. An example of
such a positive externality is a business firm that landscapes its grounds
and develops a sculpture garden that benefits not only the firm but also
benefits the neighborhood. Positive externalities ordinarily are not the

Version 1 29
subject of regulation.
54) a) One view is that regulation is necessary for the protection and
general welfare of the public. We find the government engaging in
regulatory efforts designed to achieve a more equitable distribution of
income and wealth (such as Social Security and the minimum wage).
Many believe government intervention in the market is necessary to
stabilize the economy, thus curbing the problems of recession, inflation,
and unemployment. Affirmative action programs seek to compensate for
racism and sexism. We even find the government protecting us from
ourselves, both for our benefit and for the well-being of the larger
society (consider seat belt requirements).
b) Another view is that regulation is developed at the request of
industry and is operated primarily for the benefit of industry. Here the
various subsidies and tax advantages afforded to business might be cited.
In numerous instances, government regulation has been effective in
reducing or entirely eliminating the entry of competitors. Government
regulation has also permitted legalized price-fixing in some industries.
Of course, it may be that regulation is often initiated primarily for the
public welfare, but industry eventually “captures” the regulatory process
and ensures its continuation for the benefit of the industry. On the other
hand, some corporations seek government standards so they can do what
is best for society without being undercut by their less socially
responsible competitors.
c) Finally, bureaucrats who perform government regulation are
themselves a powerful force in maintaining and expanding that
regulation.

Version 1 30
55) The Commerce Clause of the U.S. Constitution broadly specifies the
power accorded to the federal government to regulate business activity.
Article I, Section 8 of the Constitution provides that “The Congress shall
have the power . . . to regulate Commerce with foreign Nations, and
among the several States, and with the Indian Tribes.” State authority to
regulate commerce resides in the police power specified by the
Constitution. Police power refers to the right of the state governments to
promote the public health, safety, morals, and general welfare by
regulating persons and property within each state’s jurisdiction. The
states have, in turn, delegated portions of the police power to local
government units. The states, via their constitutional police power, have
the authority to regulate commerce within their jurisdictions for the
purpose of maintaining public health, safety, and morals. However, the
Commerce Clause accords the federal government broad authority over
commerce. The federal government has exclusive authority over foreign
commerce. Purely intrastate commerce, having no significant effect on
interstate commerce, is within the exclusive regulatory jurisdiction of
the states. Purely intrastate commerce is uncommon. The confusion
arises in the middle ground of interstate commerce where regulation by
the federal government or state governments or both may be permissible.
While federal government regulation of interstate commerce is
pervasive, it is not exclusive, especially in matters involving the states’
police powers.

Version 1 31
56) The federal government receives greater attention, but state and local
rules have an enormous impact on business practice. The states are
primarily responsible for regulating the insurance industry and are
heavily involved in regulating banking, securities, and liquor sales.
Many businesses and professions—from psychology to funeral
preparation to barbering to the practice of medicine—require a license
from the state. Public utilities (gas, electricity, sewage disposal) are the
subject of extensive regulation governing entry, rates, customer service,
and virtually all of the companies’ activities. All states have some form
of public service commission charged with regulating utilities in the
public interest. Many states seek to directly enhance competition via
antitrust legislation. Many states have passed laws forbidding usury,
false advertising, stock fraud, and other practices harmful to the
consumer. Local regulation is much less economically significant than
state regulation. Local government intervention in business typically
involves various licensure requirements. For example, businesses like
bars and theaters are often required to obtain a local permit to operate.
More broadly, more than 1,000 of America’s occupations (medicine,
law, building, construction, electrical work, and so on) can be practiced
only by those who have secured licensure from federal, state, and/or
local authorities. Licensure is to protect the public from unsafe,
unhealthful, and substandard goods and services, but critics contend that
licensure is often designed to block the entry of competitors and that the
benefits of licensure are exceeded by its costs in increased prices,
decreased services, and administrative overhead.

Version 1 32
57) a) Control of supply: Some agencies control entry into certain
economic activities.
The Federal Communications Commission grants radio and television
licenses. The Food and Drug Administration decides which drugs may
enter the American market. The Securities and Exchange Commission
acts as a gatekeeper, preventing the entry of new securities into the
marketplace until certain standards are met. The general concern is that
the market alone cannot adequately protect the public interest.
b) Control of rates: Historically, those federal agencies charged with
regulating utilities and carriers (Federal Energy Regulatory Commission,
ICC, and CAB) set the prices to be charged for the services offered
within their jurisdictions, but the deregulation movement resulted in the
elimination of the CAB and the ICC and a general decline in agency
rate-setting. The federal government decided to reduce or eliminate its
authority in decisions such as the price of airline tickets, cable TV rates,
and long-distance telephone rates.
c) Control of conduct:
(i) Information: Agencies commonly compel companies to disclose
consumer information that would otherwise remain private. Warning
labels, for example, may be mandated. (ii) Standards: Where simply
requiring information is deemed inadequate for the public needs, the
government may establish minimum standards that the private sector
must meet. A ladder might be required to safely hold at least a specified
weight, or workers might lawfully be exposed to only a specified
maximum level of radiation. (iii) Product banishments: In rare
circumstances, products can be banned from the market. The Food and
Drug Administration in 2004 banned the sale of weight loss products
containing ephedra (ma huang) with the active ingredient ephedrine. The
ban and associated publicity have been useful in that serious ephedra
poisonings through 2013 had declined by more than 98 percent.

Version 1 33
58) Agencies enact three types of rules: (a) procedural, (b) interpretive,
and (c) legislative. Procedural rules delineate the agency’s internal
operating structure and methods. Interpretive rules offer the agency’s
view of the meaning of those statutes for which the agency has
administrative responsibility. Internal Revenue Service regulations are
an example of interpretive rules. Legislative rules are policy expressions
having the effect of law. The agency is exercising the law-making
function delegated to it by the legislature. The National Highway Traffic
Safety Administration, for example, recently issued a rule requiring all
new vehicles under 10,000 pounds to have rear visibility technology
(typically, backup cameras) by 2018.
The Administrative Procedure Act provides for both informal (often
called “notice and comment”) and formal rule-making processes for
legislative rules. Under both approaches, the process begins with the
publication of a Notice of Proposed Rule Making in the Federal Register
(a daily publication of all federal rules, regulations, and orders).
Thereafter, in the case of informal rule making, the agency must permit
written comments on the proposal and may hold open hearings. To
enhance participation in the rule-making process, the federal government
provides an online portal where the public can comment on proposed
rules. Having received public comments, the agency either discontinues
the process of devising the new rule or prepares the final rule. In the case
of formal rule-making, after providing notice, the agency must hold a
public hearing conducted with most of the procedural safeguards of a
trial, where all interested parties may call witnesses, challenge the
agency evidence, and so on.

Version 1 34
59) Executive constraints: The president appoints the top administrators
for the various agencies, thus significantly influencing the conservative
or liberal slant of the agency. Furthermore, the president obviously has
great influence in the budget process. Recent presidents have
strengthened executive oversight of agency action by requiring cost-
benefit analyses for new rules (President Clinton) and commanding
agencies to cite a specific market failure before issuing a new rule
(President George W. Bush). President Obama maintained the cost-
benefit expectation, and he introduced a new initiative to get rid of what
he has labeled “dumb” rules. Additionally, President Obama ordered all
federal agencies to eliminate outdated rules that “stifle job creation and
make our economy less competitive,” and he has asked Congress for
authority to consolidate a number of federal agencies.Congressional
constraints: Congress creates and can dissolve the agencies. Congress
controls agency budgets and thus can encourage or discourage particular
agency action. Broadly, Congress oversees agency action, and agencies
often check with Congress before undertaking major initiatives.
Congress can directly intervene by amending the enabling legislation or
by passing laws that require agencies to take specific directions. The
difficulty in balancing congressional and agency authority is well
illustrated by an important 2001 Supreme Court decision involving the
federal Clean Air Act (CAA). The case, Whitman v. American Trucking
Associations, Inc. raised the question of whether Congress had
improperly delegated its authority to the Environmental Protection
Agency (EPA) and whether the EPA must take the cost of implementing
clean air regulations into consideration when developing new rules. A
unanimous Supreme Court ruled that Congress had built into the CAA
constitutionally sufficient limitations on agency action, and the Court
ruled that Congress clearly did not require the EPA to conduct cost–
benefit analyses before establishing new rules. Thus the Court concluded

Version 1 35
Test Bank for Law Business and Society 12th Edition By McAdams

that Congress can constitutionally offer agencies broad authority in

carrying out Congress’s general intentions.
60) Until the recent subprime mortgage crisis and recession, the United
States had been in a period, since the late 1970s, of deregulation, during
which great efforts were made to reduce the role of government in big
portions of American life. Once tightly controlled industries, including
energy, transportation, and telecommunications were substantially
returned to market forces. The results often included lower prices and
increased innovation.Republicans and Democrats alike generally
embraced the idea that greater efficiency, competitiveness, and freedom
would accompany reduced government oversight. Of course,
government authority remained enormous, and regulation in workplace
safety, the environment, equal opportunity, and consumer protection
persisted and often grew where the market did not seem to be
performing well. In brief, the excessive regulation argument is that
government rules reduce business efficiency, kill jobs, discourage
innovation, impose very high compliance costs, and curb freedom while
expanding the government bureaucracy and the taxes/borrowing that
fund it.

Version 1 36

Visit TestBankBell.com to get complete for all chapters