Deck 24: Government Regulation of Business

Question 1

Government regulation of business involves recognition of the fact that
A.federal laws are always preferable to provincial regulation.
B.cost-effectiveness is the sole goal of regulation.
C.that regulations impose costs on business.
D.unlimited competition is necessary for markets to function effectively.
E.government power to regulate is unlimited by any law.

Answer 1

C

Question 2

Provinces are restricted to imposing direct taxes because

A)direct taxes always generate more money than indirect taxes.
B)indirect taxes always generate more money than direct taxes.
C)practically speaking, there is no way for a province to collect an indirect tax.
D)the burden of an indirect tax is generally shifted onto other people by the taxpayer, so that there is a real risk that a province's indirect tax will ultimately be paid by someone outside that province.
E)the federal government is restricted to imposing indirect taxes.

Answer 2

the burden of an indirect tax is generally shifted onto other people by the taxpayer, so that there is a real risk that a province's indirect tax will ultimately be paid by someone outside that province.

Question 3

Within the context of the Competition Act, the phrase "price maintenance" refers to a situation in which a business commits an offence by breaking its promise that its goods or services will be available at a certain price for a certain time.

Answer 3

False

Question 4

Broadly speaking, under the Competition Act, some matters are criminal offences, others are reviewable practices that may be the subject of an application to the Competition Tribunal by the Commissioner, and misleading advertising may be dealt with as a criminal offence or a reviewable practice.

Question 5

H₂O Canada Inc is a Burnaby-based water company that seeks to export water from Canada in bottled form.To do so it will most likely have to comply only with federal legislation since the water is for export alone.

Question 6

Under the Competition Act, the defence of due diligence is available if the person responsible for a misleading advertisement took all possible precautions to ensure that the advertisement was not unreasonably misleading.

Question 7

Maura owns a company that operates a restaurant.Much of the business' profits are earned on the sale of alcohol.Those profits were reduced, however, after the province imposed a hefty tax on restaurants that sold alcoholic beverages.As the government anticipated, restaurants like the one owned by Maura responded by raising the price of each drink by the amount of the tax.The business nevertheless suffered because the customers, who realized that they were effectively paying for the tax, drank less or avoided the restaurant altogether.Which of the following facts is most likely to be TRUE?
A.The tax is invalid because it is indirect.
B.The tax is invalid because provinces have the power to tax individuals, but not corporations.
C.The tax is valid, but the province will have to share the money with the federal government.
D.The tax is valid because it is imposed directly on the company.
E.The tax is valid, but only if it was authorized by the federal government.

Question 8

In Canada, the power of taxation

A)belongs exclusively to the federal government.
B)is divided: the federal government is entitled to impose taxes on people and businesses who generate income in more than one province, but each province is restricted to imposing taxes on individuals who earn all of their income in that province.
C)is not mentioned in the Constitution, but has been divided between the federal government and the provinces by means of an agreement.
D)is divided: the federal government is entitled to impose direct and indirect taxes, but the provinces are restricted to imposing direct taxes.
E)belongs exclusively to the provinces.

Question 9

Your friend, Aher, wants to be a candidate in upcoming election.He has a lot of great ideas, but he is not entirely clear on certain political and economic issues.He finds taxes, in particular, to be baffling.He therefore has asked you to teach him about a few basic concepts.His first question: "What is the difference between a direct tax and an indirect tax?"

A)A direct tax is created by the province alone; an indirect tax is created by the federal government on behalf of a province.
B)A direct tax is a tax imposed on the person who must pay it; an indirect tax is imposed one person with the expectation that the burden will be shifted to another.
C)A direct tax is imposed on a person who harvests or manufactures goods; an indirect tax is imposed on a person who deals with goods that someone else harvested or manufactured.
D)A direct tax is imposed on the person who first sells an item; an indirect tax is imposed on anyone who re-sells that same item.
E)A direct tax is any tax imposed by the federal government; an indirect tax is any tax imposed by a province.

Question 10

For as long as she can remember, Gail's parents owned and operated an English-style pub on Vancouver Island.Although she moved to Halifax as an adult, Gail simply could not deny her past.After growing bored with several other jobs, she decided that she too would open and operate a pub.One of her most important decisions concerned the type of drinks that she would sell.Almost all of the relevant considerations pointed to the same answer: McCorquodale Ale.The locals loved it, Gail's parents had sold it, and it is generally available at a good price.McCorquodale's sales representative, however, said that the company's ale was for sale to Gail only if she also agreed sign a long-term contract for the purchase "Mr McCorquodale's Frail Pale Kale," a delicate, sun-bleached, potato-chip substitute made from seaweed.If the Commissioner of Competition looks into the matter, McCorquodale Ale is most likely to be investigated for a type of anti-competitive behaviour known as "parasitic selling."

Question 11

Under the Competition Act, the Commissioner refers: (a) criminal matters to the Attorney General for prosecution, and (b) reviewable matters to the Competition Tribunal for orders.

Question 12

Vic Spiv is a ferociously aggressive and highly persuasive salesman.If you were to meet him, he would immediately look you in the eye and say, "Right, mate.I can sell you anything." Often enough, that seems to be true.Spiv's most recent business venture is selling magazine subscriptions door-to-door.Yesterday, Les opened his door and, six minutes later, Spiv walked away with his signature on a contract for a three-year subscription to Quilting Canada.Under the terms of that agreement, the monthly magazine will cost Les $240 per year.Les actually has no interest in quilting, but he found that he just could not say "no" to Spiv.Assuming that Les lives in a province that provides a statutory "cooling-off period," he is entitled to escape from the contract any time before the subscription expires.

Question 13

In late August, Idris moved from his parents' home in Kamloops to Winnipeg for college.Because he was living on his own for the first time, Idris was eager to find decent pieces of furniture at low prices.He consequently was excited to see an advertisement that Guile Furniture, a local store, placed in the newspaper: "Rest-E-Z Classic Recliners-Regularly $999-Sale Price $499-Tomorrow Only." Idris was waiting the next morning when Guile Furniture opened its front door.When he asked to see the specially-priced recliners, however, the young sales representative sheepishly looked at the floor and said, "Oh no … they didn't run that ad again? Well, we don't have any Rest-E-Z Classic Recliners-we actually never have those things in stock-but we do have another recliner that I could let you have for $800." If the Commissioner of Competition looks into the matter, Guile Furniture is most likely to be investigated for running a multi-level marketing plan.

Question 14

Daphne runs a foodservice company, Le Monde Café, and believes that key suppliers are refusing to deal with her on critical items she needs for the business.Assuming that the requirements for the reviewable practice of refusal to deal under the Competition Act are satisfied, she can obtain a cease-and-desist order against the suppliers through a private action before the Competition Tribunal with leave of the Tribunal.

Question 15

Last year, as she was preparing a sumptuous dinner for her boss, Jan reached to the back of her refrigerator for a jar of olives.The contents of the jar looked a bit funky, but Jan did not decide to toss the olives in the garbage until she noticed the "Best Before" date: "7 Feb 2012." That information most likely came to Jan as a result of a federal statute called the Hazardous Products Act.

Question 16

Arturo Inc recently began to manufacture canned curry sauces, at a factory in Toronto, in order to compete against some of the more expensive imported curry sauces that Canadian consumers traditionally buy.However, Arturo Inc's products do not contain ingredients on their labels and do not state a "best before" date.As a result, Arturo Inc may be in violation of the federal Food and Drugs Act.

Question 17

In Canadian law, an abuse of dominant position requires a firm to have a monopoly in some class or species of business.

Question 18

The Competition Act deals with three types of mergers, known as horizontal mergers, vertical mergers, and diagonal mergers.

Question 19

Zoë received a complete set of stories by the Brontë sisters in the mail from Umlaut Püblishing Inc.She did not order the books, she had never heard of Umlaut, and she was only vaguely aware of the Brontë sisters.If Zoë lives in a province like British Columbia, Ontario, or Nova Scotia, she must pay for the books unless she promptly returns them to the company.

Question 20

Only the federal government is entitled to impose income taxes.

Question 21

Edgardo runs a fish store in Toronto's Kensington Market.That store purchases its supplies from a wholesaler and then re-sells the goods to the public.Because he knows the market well, Edgardo is able to offer low prices.As a result, his store is always full of customers.Lately, however, Edgardo has had difficulty getting wild, as opposed to farmed, salmon.When he asked for an explanation, his wholesaler said, "Your prices are too low and you're making the other fishmongers look bad.If I let you carry on that way, you'll ruin the business for everyone else." Edgardo, who is furious, asked you what he should say to the Competition Bureau.You told him that, out of the following options, his BEST solution is to complain about

A)the monopoly that the other fish retailers have created.
B)a criminal conspiracy to drive him out of the market.
C)the reviewable practice of exclusive dealing, because the wholesaler is only willing to sell wild salmon to Edgardo's competitors.
D)the reviewable practice of price maintenance, because the wholesaler refuses to sell wild salmon to Edgardo because of his low pricing policy.
E)the reviewable offence of tied-selling, because the wholesaler's decision is tied to its desire to help Edgardo's competitors.

Question 22

As discussed in Chapter 24, what is a Notice of Assessment?
A.a document used to appeal a decision of the Competition Tribunal
B.a government's determination of the amount owed by a taxpayer
C.a process used to calculate the economic impact of a merger
D.economic guidelines that a judge uses to calculate damages for an anti-competitive act
E.an analysis used to determine whether a company exercises a monopoly

Question 23

Kimo runs a chain of health food supermarkets in Victoria, British Columbia.In the past, his stores offer a number of products that other major grocery retailers did not stock.As a result, Kimo enjoyed a loyal and steadily growing clientele.Recently, however, he has noticed that Global Foods, the major grocery retailer in the area, is offering several of his products, such as dried rice snacks, organic herbs, and shiatsu oils, at cut-rate prices.He cannot possibly match those prices without losing money.Kimo suspects that Global is selling those items below their cost in order to drive him out of business.If Global Foods is engaged in anti-competitive behaviour, it most likely is

A)the reviewable practice of abuse of dominant position.
B)the criminal offence of bid-rigging.
C)the reviewable practice of price maintenance.
D)the criminal offence of misleading advertising.
E)the criminal offence of conspiring to reduce competition.

Question 24

Marissa is the CEO of Motormax Inc, a generic auto parts manufacturer that does business with several large auto manufacturers.Parts manufacturing is a highly competitive business.Several years ago, Marissa was contacted by the CEO of a competitor who asked whether Motormax would like to "go in with them." At the time, Marissa did not understand what that meant, so she replied in the negative.She now realizes, however, that the rival's CEO was proposing a conspiracy to reduce competition.Furthermore, she has begun to notice that the pricing of her competitors' products is always suspiciously the same as hers.Which of the following statements is TRUE?

A)Conscious parallel pricing by parts manufacturers is a criminal offence.
B)The actions of the other parts manufacturers is a criminal office only if an agreement to lessen competition unduly can be proven.
C)Any agreement to intentionally fix prices is a criminal offence.
D)Any agreement to fix prices is a reviewable practice but not a criminal offence.
E)Agreements to fix prices are only reviewable if the price is lower than the cost of production, and only if the intention of the parties to the agreement is to drive competitors out of the market.

Question 25

Old West Inc exports Tex-Mex food products into western Canada from its manufacturing plant in Amarillo, Texas.In fact, western Canada is Old West's only non-American market.Western Canadians have similar tastes to Texans and, with a few exceptions, packaging that appeals to Texans appeals to western Canadians as well.As a result, the products bear exactly the same labels whether there are consumed in Edmonton or El Paso.The future consequently looked bright for Old West, at least until yesterday.The company learned that a consumer in Vancouver has complained that the labelling on a pack of taco shells was not bilingual.Old West is potentially in contravention of the
A.Consumer Labelling and Packaging Act.
B.Textile Labelling Act.
C.Hazardous Products Act.
D.Food and Drug Act.
E.Competition Act.

Question 26

Monopoly is related to abuse of dominant position because

A)monopolization requires a conspiracy and an intent to monopolize.
B)in order for an abuse of dominance to occur, a firm must have substantial control over market share, and monopoly is one example of such control.
C)abuse of dominant position occurs when conduct results in even a minor reduction in competition.
D)both are considered criminal matters under the Competition Act and both are referred to the Attorney General for prosecution.
E)both are subject to the defence of due diligence.

Question 27

The Merex 200E is a new sports coupe designed to appeal to the highest bracket of consumer.Each coupe costs at least $100 000.Calvin, a young stockbroker in Toronto, saw an ad for the Merex 200E in the subway.It says, "0 to 60 in 2.8 seconds." He went straight to the Toronto Merex dealer, took the car out for a test ride, but did not have an opportunity to test the acceleration.The sales representative, however, assured Calvin that the acceleration promised in the advertisement had been verified by an independent testing agency.Relying on the test drive and the representative's sales pitch, Calvin bought a hot red 200E and tried several times to take the car up to 60 mph in 2 seconds.He had no success.Worse yet, he discovered that the engine stalls dangerously when accelerating rapidly.Which of the following is most likely to be TRUE?

A)Merex cannot be prosecuted for the offence of misleading advertising.
B)If Merex is prosecuted for the offence of misleading advertising, it can rely on a defence of due diligence if it had retained an independent testing agency that had verified the promised acceleration.
C)Merex cannot be prosecuted for misleading advertising because accelerating quickly is dangerous.
D)Merex can be prosecuted for the offence of misleading advertising, but only by the Commissioner of Competition.
E)Merex cannot be prosecuted because, regardless of what the advertisement said, it would be illegal for anyone to accelerate from 0 to 60 in 2.8 seconds on a public road.

Question 28

Marianne Menzies is the president of MenzTel Inc.She fears that her company's principal supplier may be up to no good.It has denied MenzTel access to its latest telecommunications technology.Furthermore, several new models are available through supplier's retailer arm, but are not available to MenzTel.Because there are no other suppliers with competing products in the area, MenzTel is rapidly losing business opportunities.The supplier has told Marianne that it will not sell to MenzTel.Out of the following options, MenzTel's BEST response is to

A)sue the supplier for the tort of unfair sales practices.
B)speak badly of the supplier whenever someone in the same industry is within earshot.
C)apply directly to the Competition Tribunal and prove that it has been directly and substantially affected by its inability to obtain supplies.
D)prosecute the supplier for the crime of unconscionable market distortion.
E)pursue arbitration.

Question 29

The type of merger that are most likely to reduce competition is a

A)vertical merger.
B)horizontal merger.
C)diversification merger.
D)merger between suppliers and their customers.
E)merger between firms of the same size.

Question 30

Maleficent Inc recently was engaged in re-sale price maintenance.Despite being a private citizen, Sinjin Virtue wants to bring an action against the company under the Competition Act.His right to do so

A)is non-existent because Maleficent Inc neither committed a crime nor violated an order of a court or the Competition Tribunal.
B)depends upon his ability to obtain the Competition Tribunal's permission by proving that he was directly and substantially affected by Maleficent Inc's behaviour.
C)is restricted to the recovery of damages for losses that he personally suffered as a result of Maleficent Inc misconduct.
D)may lead to damages, but not to a cease-and-desist order.
E)depends upon his ability to prove that Maleficent Inc intended to hurt him personally.

Question 31

Under the Competition Act, a private person has a right to receive damages for losses suffered, but only if those losses were caused by anti-competitive behaviour that was

A)a criminal offence.
B)a criminal offence or a reviewable matter.
C)a criminal offence, a reviewable matter, or a dual category matter.
D)either a criminal act, or a violation of an order from a court or the Competition Tribunal.
E)was deliberate.

Question 32

Under the Competition Act, "dual category matters" are
A.matters that are criminal in nature but subject to civil penalties.
B.matters that are civil in nature but subject to criminal penalties.
C.purely regulatory offences.
D.matters that have caused harm to both the public generally and at least one individual specifically.
E.matters in which the Commissioner of Competition has a discretion to treat as criminal matters or as reviewable matters.

Question 33

Janell Inc is an importer of luxury European fabrics.Because the company must fill containers with fabric in order to make them worthwhile to import, Janell Inc had adopted a policy that requires all of its retail customers to purchase two fabrics: one that they choose and one chosen by Janell.If Janell is a major supplier in the market, and if its policy has an adverse effect on competition, then under the Competition Act, that policy may constitute
A.exclusive dealing.
B.market restriction.
C.a conspiracy to reduce competition unduly.
D.multi-level marketing.
E.tied selling.

Question 34

DeAndre Inc runs a bakery in La Ronge, Saskatchewan.He bought the bakery from King's Bakery Inc.In the sale agreement, DeAndre agreed not to sell bakery products outside of La Ronge.Business is good, however, and DeAndre wants to expand.He is not interested in competing with King's Bakery, which now sells its products exclusively in Regina, Saskatchewan.King's Bakery does hope, however, to expand into other markets.DeAndre wants to know if he can successfully challenge the contractual term that restricts him selling in La Ronge.

A)Probably.Restraints on trade are permissible, but they are scrutinized by the courts to ensure that they do not unduly restrict competition.Here, restricting DeAndre to selling bakery products in La Ronge is probably more restrictive than is necessary to protect the commercial interests of King's Bakery.
B)Probably not.Restraints of trade are dealt with exclusively as criminal matters by the Commissioner of Competition under the Competition Act.
C)Probably.The contractual term is a restraint on trade.That type of term may provide a private benefit, but it is never in the public interest.
D)Probably not.Unless a crime is committed, the public's interest in freedom of contract outweighs the public's interest in freedom of competition.
E)Probably.The contractual term is a regulatory offence.

Question 35

For certain transactions, the threshold for pre-merger notification is met if
A.either the value of the target firm or the assets being acquired exceeds $40 million, or the combined revenues of the entities involved exceed $400 million per year.
B.the entities involved are engaged in bid-rigging and their combined revenues exceed $400 million per year.
C.the entities involved are worth more than $100 million or their combined revenues exceed $400 million per year.
D.the value of the target firm or the assets being acquired exceeds $87 million, and the combined assets or revenues of the entities involved and their affiliates exceed $400 million per year.
E.there is an abuse of dominant position and the combined revenues of the entities involved exceed $400 million per year.

Question 36

What is the federal government's primary strategy for avoiding double taxation in the context of corporations and shareholders?

A)Income earned by a corporation is never taxed until it is distributed to shareholders as dividends.
B)Both corporations and shareholders pay income tax, but in each instance, the taxpayer is given a deduction for half the total amount that was received.
C)A corporation must pay tax on its income, but if it distributes dividends to its shareholders, it can deduct the same amount from its annual property tax assessment.
D)Income earned by a corporation and paid out as a dividend is treated as if it had been earned directly by the shareholder.
E)Income earned by a corporation is taxed, but revenue distributed to shareholders is classified as dividends, rather than income, and consequently is tax-free.

Question 37

Patty owns and operates Pretty Party People Inc, which sells party supplies and caters special events.The last year has been reasonably successful, but looking over the records, Patty notice that her company paid a very large amount of money for something called a "harmonized sales tax." As a result of asking her accountant, Patty learned that the harmonized sales tax

A)is a single tax that combines a federal sales tax and a provincial sales tax.
B)is a single federal tax that replaces several smaller federal taxes that previously existed.
C)is a single tax that replaces two old taxes, one that applied to the sale of goods and another that applied to the sale of services.
D)requires an employer to deduct its employees' income tax from their pay and forward it to the government.
E)is a tax of 5 percent that several provinces agreed to adopt; each of those provinces previously had a sales tax, but the rates varied between 3 percent and 8 percent.

Question 38

Fancy Pants Inc is a successful clothing company based in Calgary.In the past few years, sales have skyrocketed and revenues have grown enormously.Like many successful businesses, Fancy Pants has employed various strategies in an attempt to reduce its tax liabilities.Unfortunately, Fancy Pants also shares one other similarity with many other Canadian companies: it has fallen into dispute regarding the amount that it owes in federal taxes.Which of the following statements is most likely to be TRUE?

A)For the purposes of the dispute, Fancy Pants will deal with the Customs and Revenue Administration (CRA).
B)Fancy Pants initiated the dispute by drafting a formal document called a Notice of Assessment and submitting it to the relevant branch of the government.
C)Depending upon the circumstances, Fancy Pants may present its arguments four times: during an administrative appeal, in the Tax Court, in the Federal Court, and (if permission is granted) in the Supreme Court of Canada.
D)Fancy Pants has only one chance to get it right-decisions of the Tax Court of Canada cannot be appealed.
E)Fancy Pants was subject to a field audit, which means that a government official visited a small number of Fancy Pants' customers and formed a general opinion regarding the company's sales, and will later conduct an office audit by examining Fancy Pants' official records.

Question 39

Java Joe is a coffee wholesaler.It is run by Ernesto Arabica and his brothers, Che and Hugo.Times are good.Canadians are drinking more coffee than ever before and an increasing number call on Java Joe for their daily fix of caffeine.Ernesto has therefore begun to wonder how he and his brothers can enjoy the profits, but pay as little in tax as possible.He has come to you for advice.He and his brothers specifically want to know about the tax implications of different business models.You have correctly said that

A)corporations are solely responsible to pay tax on income earned by the business, and that shareholders are taxed only when the corporation pays them something, like a dividend.
B)if Java Joe is incorporated, and if the company is ever unable to pay its income taxes, the shareholders will be liable for the debt.
C)if Java Joe is incorporated, the company and its shareholders will pay roughly twice as much tax as the brothers would pay if they carried on business without incorporating.
D)the brothers have no choice in the matter-because three people cannot operate a "sole proprietorship," they must incorporate Java Joe.
E)Java Joe definitely should be incorporated-companies are never taxed on their income and dividends are not classified as income for shareholders.

Question 40

Primex is a discount broker that has offices across Canada.In recent years, it has used a number of innovative practices in order to grab more than 90 percent of the market for discount brokerage services.Its online services are second to none.The company also has a policy of filling orders almost instantly.Other discount brokers are irked by what they see as Primex's abuse of its dominant position.They are worried Primex is grabbing more and more market share by taking advantage of its presence in every significant town in the country.If a complaint was made that Primex was engaged in an abuse of dominance, Primex could successfully plead

A)the defence of due diligence.
B)none of the defences, because Primex has deliberately exercised an abuse of dominant position.
C)the concept of superior competitive performance.
D)the defence of felix confractus (which means "lucky break").
E)the defence that it does not control the market because it has less than 100 percent of the discount brokerage business.

Question 41

There are several types of offences under the Competition Act.Which of the following statements is TRUE?
A.Every type of offence can lead to an award of damages.
B.It sometimes is possible to appeal a decision of the Competition Tribunal to the Federal Court.
C.A reviewable matter is a type of offence that can only trigger an investigation by the Competition Bureau, and can result in recommendations, but not other types of relief.
D.Dual matters involve the commission of more than one offence by a single offender.
E.The Competition Act does not allow for private actions.

Question 42

Nefarious Inc and Jaffar together control 90 percent of the market for artificial hearts.Nefarious and Jaffar will not be held to have committed an offence under the Competition Act if
A.they agree on the prices that they will charge their customers.
B.they agree to limit their production of artificial hearts for the purpose of driving up prices of their products.
C.they agree in advance on the bids each will submit for a contract to supply artificial hearts to a hospital.
D.they agree to limit their sales of artificial hearts for the purpose of driving up prices for their products.
E.the evidence against them does not establish their guilt beyond a reasonable doubt.

Question 43

Skooma Drugs Inc has been accused of getting together with the other pharmacies in and forging an agreement to consistently charge inflate prices.The company's director, Kaye Jeet, does not seem especially worried, however."These accusations have been around for years," she said."Back in 1990s, my father constantly dealt with similar allegations and he easily got away clean.Conspiracies are almost impossible to prove." Kaye's nephew, Garfield, is not so confident.In a Business Law course, he learned of an important event in 2010.Consequently, unlike his aunt, Garfield knows that

A)a criminal conviction for conspiracy now requires proof on a balance of probabilities, rather than proof beyond a reasonable doubt.
B)a conspiracy no longer requires proof that competition has been completely eliminated-it is now enough that competition was significantly reduced.
C)a conspiracy no longer requires an agreement between two separate businesses-a conspiracy may exist as long as a company's director formulates a plan on that company's behalf.
D)the Supreme Court of Canada held that a conspiracy does not require an actual agreement if two or more parties, in fact, always charge the same prices for the same goods or services.
E)the Competition Act was amended to say that any agreement between competitors to restrict competition is a criminal offence.

Question 44

Which of the following statements is TRUE with respect to capital gains tax?

A)The name of the tax is derived from the Latin word caput which means "head"-a capital gains tax is the amount that must be paid for each member of a household that earns above a certain amount.
B)A capital gains tax consists of all of the various amounts that an employer must deduct from an employee's pay cheque.
C)Only a portion of capital gains are taxed, while all income from sales in the ordinary course of business is taxed.
D)A company is liable to pay a capital gains tax whenever it sells some of its inventory in the ordinary course of business.
E)The tax is designed to encourage economically efficient behaviour-it applies only if assets are sold for less than their cost.

Question 45

Alpha Corp and Beta Inc recently merged.Prior to the merger, both companies manufactured tools.The merged company continued to do so after the merger.Technically speaking, the parties were involved in a

A)fusion merger.
B)diversification merger.
C)vertical merger.
D)parallel merger.
E)horizontal merger.

Question 46

Figure 24.2 provides an overview of the enforcement process under the Competition Act.In one sense, the most important part of that process is the beginning.Which of the following events will lead the Commissioner to conduct an inquiry under s 10 of the Act?
A.a petition is signed by 100 Canadians
B.a formal request is received from the Lieutenant Governors of at least four provinces
C.six Canadian residents request an inquiry into the matter
D.a Direction is received from the Canadian Judicial Council
E.a Notice to Appear is issued by the Prime Minister or a federal cabinet member

Question 47

Which of the following statements is TRUE?

A)A harmonized sales tax now exists in every province except Alberta and Quebec.
B)A specialization agreement, in which one business promises to stop producing a product in exchange for another company's promise to stop producing a different product, is always treated as a criminal offence under the Competition Act.
C)Within the context of corporations and shareholders, "integration" refers to the federal government's attempt to create rules that generate the same amount of income tax whether a business is conducted directly by an individual or through a corporation.
D)The Competition Act's rules regarding misleading advertising previously appeared in the provincial Sale of Goods Acts.
E)The Supreme Court of Canada's decision in Tervita Corporation v Commission of Competition stands for the proposition that the defence of due diligence is not available to a taxpayer that is accused of tax evasion.

Question 48

Low-Valu Inc owns and operates a number of discount mega-stores.Because of increasing competition, it has engaged in a number of improper business practices.It was recently accused of a "bait and switch" practice in one of its stores.Which of the following statements is most likely to be TRUE?
A.The alleged practice occurs when a store places two price tags on one item, and then charges the customer the higher amount.
B."Bait and switch" is expressly prohibited by the Sale of Goods Act.
C.The phrase "bait and switch" refers to the fact that the alleged offence originally arose in connection with general stores in the nineteenth century, who sold, among other things, hunting supplies.
D.The alleged practice is a criminal matter under the Competition Act.
E.Low-Valu drew customers into its stores by advertising low prices on specific items, but when customers arrived, they were told that while the advertised items were not in stock, alternative items were available at higher prices.

Question 49

The Ether Store Inc is trying to break into the potentially lucrative world of online retailing.Given the competitive nature of the field, it believes that the key to success is advertising and promotion.It therefore has asked you to review and assess several proposals that it has developed.Which of the following statements is TRUE?

A)Because it is considered relatively less harmful than other sorts of offences, misleading advertising is always treated as a civilly reviewable matter under the Competition Act
B)Misleading advertising is not committed under the Competition Act unless the court is satisfied that at least one customer was actually misled.
C)Although there have been calls for reform, the Competition Act does not yet regulate telemarketing.
D)It is an offence to engage in telemarketing unless callers doing it identify themselves, explain the purpose of the call, and describe the product at the beginning of the call.
E)The due diligence defence is never available in connection with advertising offences.

Question 50

Sanjiv is an accountant.Although he recognizes the need for the government to have money for the purposes of funding social programs and whatnot, he is strongly opposed, as a matter of principle, to excise taxes.That most likely means that Sanjiv

A)objects to payroll taxes.
B)believes that he should not have to pay a consumption tax on non-essential goods.
C)does not think that he should have to pay taxes on money that he earned outside of Canada.
D)is offended that the government taxes the proceeds realized from the sale of assets at a price above their cost.
E)objects to the payment of "sin taxes" on alcohol and tobacco-the word "excise" is derived from the Latin phrase ex id salus, which means "outside that safety."

Question 51

As discussed in Case Brief 24.2, the dispute involving lululemon athletica

A)eventually led Parliament to enact the Consumer Packaging and Labelling Act to protect consumers from rapacious businesses.
B)was the first case in which a company was successfully prosecuted under the Competition Act.
C)was widely reported as a victory for unscrupulous companies because it allowed the company to avoid liability by simply moving its manufacturing plant outside of Canada.
D)arose from a misleading advertising campaign.
E)resulted in a Supreme Court of Canada decision that fundamentally reformulated the defence of due diligence.

Question 52

Stipe refers to himself as "the Money Wizard." At any given time, he will tell you, he has "at least a dozen cash-creating projects in operation." And true enough, Stipe has made a substantial amount of money since graduating from business school just five years ago.It should also be said, however, that another one of Stipe's mottos-"There's no reward without risk"-came back to bite him.He was recently found to have committed a reviewable offence under the Competition Act.Which of the following statements is most likely to be TRUE?

A)Stipe made a small fortune by selling goods on the basis of false testimonials.
B)Stipe sold goods in packages that did not provide bilingual labelling.
C)Under recent amendments to the Competition Act, the court must impose a prison sentence.
D)Stipe sold cigarettes to children.
E)Stipe's anti-competitive behaviour must have caused consumers in two or more provinces to have suffered losses.

Question 53

Under the Competition Act, which of the following statements is completely TRUE?
A.Criminal offences include bid-rigging and market restriction.
B.Most criminal offences can also be classified as dual matters.
C.Civilly reviewable matters include refusals to deal and exclusive dealing.
D.Criminal offences include price maintenance and bid-rigging.
E.Misleading advertising can be either a criminal matter or a hybrid matter, depending upon the circumstances.

Question 54

A judge has concluded that Fine's Furniture Ltd acted in a way that was both anti-competitive and criminal.That may be TRUE if the company was engaged in

A)bait and switch.
B)tied sales.
C)abuse of dominance.
D)pyramid selling.
E)misleading advertising.

Question 55

The defence of due diligence
A.is primarily relevant in connection with income tax liabilities.
B.is available to individuals, but not to companies.
C.is available under the Competition Act if the person responsible for the advertisement acted with reasonable care to ensure that it was not misleading.
D.was recently removed from the Competition Act, but it remains relevant under provincial statutes.
E.is applicable if the defendant failed to exercise care and the plaintiff suffered a loss as a result.

Question 56

Each province has enacted consumer protection legislation that complements the federal statutes like the Competition Act.Those provincial statutes vary from one jurisdiction to the next, but certain types of provisions nevertheless are common.As discussed in Chapter 24, the list of such provisions does NOT include

A)a requirement that consumers must be provided with written contracts containing prescribed information for certain types of transactions.
B)an obligation upon businesses to provide a money back guarantee on goods that are purchased for personal use.
C)a cooling-off period that allows consumers, within a limited period, to rescind certain types of contracts, such as contracts created under high pressure by sales representatives who come to consumers' homes.
D)a requirement for credit terms to be fully disclosed.
E)a right that relieves consumers of the need to either return or pay for goods that arrived without request.

Question 57

Under the Competition Act, an abuse of dominant position

A)is a criminal matter.
B)occurs when a firm has substantial control over a class of business, and engages in anti-competitive acts that substantially lessen competition (or are likely to do so).
C)is possible if, among other things, a firm "dominates" a type of business, which means that its market share is at least 51 percent.
D)triggers a "reverse onus," which means that the accused firm must prove that it did not engage in anti-competitive behaviour.
E)always requires proof that the accused firm dominates a particular market on a global scale.

Question 58

Which of the following statements is TRUE?
A.A horizontal merger involves a combination of businesses that have little or no relationship to each other, such as a meat-packing business and a lumber mill.
B.A vertical merger involves a combination of complementary businesses at different stages of production or distribution, such as a supplier and a customer.
C.A diagonal merger involves combination of businesses that operate at the same stage of production or distribution, but aim for different segments of the market, such as Earl's and McDonald's.
D.A vertical merger involves a combination of businesses at the same stage of production or distribution, such as competitors.
E.A horizontal merger involves combination of complementary businesses at different stages of production or distribution, such as a supplier and a customer.

Question 59

The Competition Bureau has long suspected HAL Corp of abuse of dominant position.After a recent investigation, the Bureau commenced proceedings against the company.Which of the following statements is most likely to be TRUE?

A)The Bureau may rely on the concept of "superior competitive performance" to prove that, as a result of committing a practice of engaging in anti-competitive acts, HAL has increased its market share.
B)HAL has engaged in an anti-competitive act if, for the purpose of eliminating a competitor, it sells its products for a price that is lower than its cost.
C)The Bureau will be concerned about anti-competitive acts by HAL if that company has more than 20 percent of the relevant market.
D)HAL cannot be held liable for abuse of dominant position unless it enjoys a monopoly with respect to at least a part of the market.
E)Because of the need to promote healthy competition, HAL would not be engaged in an anti-competitive act if it was buying up products to prevent the erosion of price levels.

Question 60

Elite Widget Inc recently was subject to a field audit.That most likely means that

A)the company conducted a study of its competitors to determine whether its products were properly priced.
B)the Canada Revenue Agency visited the company's place of business and examined its books and records.
C)one of the company's shareholders has accused the directors of a conflict of interest.
D)it has been investigated for anti-competitive behaviour.
E)the company tested the effectiveness of its advertising among consumers.

Question 61

For years, Mandy has owned a chain of six delicatessens in and around Calgary.She is very proud of the products her stores carry, but she has always wanted to get Pantry Pride Meats, Snacks, and Fruits as part of her line.This has been difficult because, as she learned early on, Pantry Pride products are sold only through authorized dealers who follow Pantry Pride's "pricing guidelines." These are meant to reinforce consumer perceptions of Pantry Pride's superiority over other brands.Mandy wonders whether there is anything under the Competition Act that would help her get Pantry Pride items.

Question 62

Identify and briefly explain seven types of taxes that are relevant to businesses in Canada.

Question 63

As a result of a recent election, your province has a new government.Compared to the previous government, it has a dramatically different view of both business and the relationship between the government and its citizens.As an expert in taxation and social policy, the new Premier has asked for your opinion regarding a proposal to substantially change the level of taxation on businesses.The Premier is well aware of the relevant considerations within the province, but wants to know if there is any need to consider how the adoption of the proposal might affect the province's relationships outside the province or outside the country.

Question 64

One of the key elements of consumer protection under provincial laws is mandatory disclosure of contractual terms.Describe the main features of provincial laws requiring disclosure to consumers.

Question 65

Diva recently graduated with a degree in design and is eager to start up a business that creates and sells high-quality widgets.She has big dreams, but she also realizes that it will take a few years to establish her reputation and locate buyers.In the meantime, she is anxious to set up her business in a way that minimizes costs and maximizes profits.In that regard, she wants your advice about business models and taxes.More specifically, she wants you to explain how her business will be taxed if she carries on by herself (as a sole proprietor) or if she incorporates a company for that purpose.

Question 66

Ultra-Brite is a new brand of clothing detergent introduced in the Canadian market in the past year following heavy promotion and advertising.It is specially formulated to take heavy dirt out of white and other light-coloured clothing.Sales have climbed substantially with the catchy new slogan "Ultra-Brite, Always White!" However, recently a small, but growing, number of complaints have been received by the Competition Bureau alleging that Ultra-Brite is in fact engaged in deceptive advertising: the use of Ultra-Brite on clothes does not always return them to a pristine, white condition like the advertising and slogan suggest.Instead, clothes washed with Ultra-Brite often have a used, faded look about them.Discuss what action could be taken against the company, and what defences would it have?

Question 67

Identify and briefly explain (a) the significance of competition in the business world, and (b) three common law actions that help to regulate competition in Canada.

Question 68

Seva Inc is a pharmaceutical manufacturer in Montreal which is about to launch a new cancer-fighting drug, Floror.The drug works by inhibiting the growth of new cells at specific body sites.Clinical trials and careful economic analysis have convinced Seva that Floror will be a hit in the therapeutic market.Nevertheless, Seva officials learn that two other rival pharmaceutical makers have their own cancer inhibitors in the works.Seva officials worry that if these drugs hit the market at the same time as Floror they will eat into Seva profits.Seva's Chief Financial Officer decides to open secret talks with the two rivals.Those discussions confirm his fears and prompt him to enter into a market-sharing arrangement in which the competitors will delay their products' entry into the market for the first five years of Floror's life in the Canadian market.In exchange, Seva will share some of its profits with its competitors, which they can use to further refine and improve their drugs.In so doing, would Seva's CFO have done anything wrong?

Question 69

Flower Inc produces a brand of energy drink originally developed in Japan that has been introduced in Canada in the past two years.It is aimed at the youth market and has several Canadian and international competitors.Flower's traditional retailers are health food and sporting good stores, but Flower's supplier is anxious to build market share and so provides hefty "slotting allowances" to larger stores that carry the brand and not its competitors' brands.Several chains then introduce Flower at heavily discounted prices to attract a younger crowd into their aisles.What competition offence might this constitute, and what can be done about it?

Question 70

Scofflaw Inc is a Canadian company that imports and exports goods from dozens of countries around the world.Because of the nature of its business, its income tax situation is complex.Scofflaw wishes to pay as little as possible, but its directors are also keen to ensure that the company remains on the right side of the law.The most recent tax year was unusually complicated and the directors anticipate that Scofflaw may have to argue with government in order to secure the most favourable tax position possible.Which government entity will deal with Scofflaw's income tax return? Briefly explain the process that (a) Scofflaw must follow for income tax purposes, (b) Scofflaw must follow if it wishes to dispute the government's position, and (c) the government must follow if it wishes to investigate Scofflaw's tax position in greater detail.

Question 71

It is often said that you should not judge a book by its cover.It nevertheless is true that attractive books sell more than ugly books.In fact, packaging and labelling play a significant role in shaping consumer choices.For that reason, the federal government has enacted four pieces of legislation that are aimed at ensuring that consumers can determine what they are buying by inspecting goods and their containers.Identify those four statutes and briefly explain what they require.

Question 72

Elkton is a small city in a remote part of Canada.Its economy struggled for several decades, but the discovery of rarium, a precious metal, in the surrounding hills had the potential to be enormously profitable for at least some of the local people.The government announced that it was holding a competition for the right to extract and sell the rarium.In an attempt to ensure that the local community benefitted from the project, the government also announced that the competition was restricted to individuals or companies with an established record of working in the area.In practice, that meant that only four business were entitled to submit bids: Wapiti & Sons Corp, Moose Mining Ltd, Cariboo Inc, and Muskox Extraction Co.Depending upon the price to be paid by the winning party, the venture promised to be extraordinarily lucrative.The individuals in control of those four entities, however, were not prepared to leave things to chance.While they each submitted a bid to the government, the agreed beforehand on three points: (a) Wapiti would offer a price somewhat lower than what the government anticipated, (b) the other parties would bid even less than Wapiti, and (c) Wapiti would share its eventual profits with the others.All of that occurred several years ago.As the bidders expected, Wapiti won the competition, received the right to mine the rarium, and shared its obscene profits with Moose, Cariboo, and Muskox.Having recently learned about the companies' agreement, the government is unhappy.What, if anything, can the government do about the situation? What outcome can the government hope to achieve? How will it achieve that end?

Question 73

With respect to the Competition Act, identify and briefly explain (a) the nature, purpose, and operation of the Act, (b) the categories of anti-competitive behaviour that are recognized by the Act, and (c) examples of each category.

Question 74

"The power of taxation is divided between the federal government and the provincial governments.The way in which that power is divided reveals how the drafters of the Constitution wanted the country to operate." Is that statement TRUE? Explain the meaning of the quotation.

Question 75

Why are mergers reviewed by the Competition Bureau?