Deck 8: Government Regulation of Business

Question 1

Negative externalities are those in which a decision maker does not receive the full benefit of a decision.

Answer 1

False
Explanation: 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).

Question 2

Federal agency rules and orders cannot be challenged in court.

Answer 2

False
Explanation: 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.
Multiple Choice Questions

Question 3

Police power refers to the right of the state governments to promote the public health,safety,morals,and general welfare.

Answer 3

True
Explanation: 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.

Question 4

The government intervenes to thwart anticompetitive behaviors throughout the marketplace.

Question 5

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

Question 6

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

Question 7

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

Question 8

When all the costs and benefits of a good or service are fully internalized or absorbed by producers or consumers,those costs or benefits fall elsewhere as externalities.

Question 9

Administrative agencies act as pseudo governments,performing purely executive,legislative,and judicial roles.

Question 10

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.

Question 11

Congress controls agency budgets and thus can encourage or discourage particular agency action.

Question 12

Purely intrastate activities can be regulated by the federal government if they have a substantial effect on interstate commerce.

Question 13

States cannot regulate insurance as this is solely a federal responsibility.

Question 14

The U.S.Constitution does not expressly forbid state regulation of interstate commerce.

Question 15

Which of the following would most likely be considered a negative externality for a manufacturing firm?

A)Internal disagreements among the firm's employees
B)Unfavorable public opinion about the firm's products
C)Air and water pollution as a result of the firm's manufacturing processes
D)Government regulations detrimental to the firm's manufacturing activities

Question 16

A natural monopoly exists where a single large firm,such as a utility,is more efficient than several small ones.

Question 17

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

Question 18

Local government intervention in business typically involves various licensure requirements.

Question 19

The Commerce Clause,as interpreted by the judiciary,affords private companies exclusive discretion over foreign commerce.

Question 20

Agency commissioners are appointed typically for a life term.

Question 21

Identify the correct statement about a federal agency.

A)An independent federal agency is usually located within the departments of the government's executive branch.
B)In a rule-making situation,a federal agency avoids using the hybrid process.
C)In creating a federal agency,Congress delegates a portion of its authority to that body.
D)A federal agency does not have substantial authority to regulate a specified segment of American life.

Question 22

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

A)The Twenty-First Amendment
B)The Commerce Clause
C)The Fifth Amendment
D)The Supremacy Clause

Question 23

Federal Trade Commission rules providing for a cooling-off period of three business days within which the buyer may cancel door-to-door sales contracts are an example of an agency's application of its _____ rules.

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

Question 24

Which of the following statements is true of licensure?

A)It is lauded for having benefits that exceed its costs in increased prices.
B)It is issued to increase services and decrease administrative expenses.
C)It is criticized as being designed to block the entry of competitors.
D)It is used by the federal government to intervene in business.

Question 25

Which of the following statements is true of executive functions of federal agencies?

A)They always offer formal advice in response to requests.
B)They are empowered to resolve tax disputes.
C)They do not deal with the compliance with laws and regulations.
D)They hear workers' compensation claims but cannot resolve them.

Question 26

Which of the following was the first federal regulatory agency that Congress established in 1887 for the purpose of regulating railroad routes and rates?

A)The Federal Trade Commission
B)The Interstate Commerce Commission
C)The Environmental Protection Agency
D)The Food and Drug Administration

Question 27

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

A)Public Records Act
B)Political Reform Act
C)Administrative Procedure Act
D)Uniform Adoption Act

Question 28

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

Question 29

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 _____.

A)public goods
B)neighborhood effects
C)commoditization
D)imperfect information

Question 30

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

A)preventing negative externalities.
B)curbing anticompetitive conduct.
C)controlling the formation of cartels.
D)regulating open competition.

Question 31

Which of the following acts forbids the use,cultivation,or possession of marijuana for any purpose?

A)The Harrison Narcotics Tax Act
B)The Controlled Substances Act
C)The Food,Drug,and Cosmetic Act
D)The Pure Food and Drug Act

Question 32

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)Banning of a flame retardant used in children's nightwear

Question 33

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 such cases.
C)Courts cannot overrule the agencies' interpretation of a rule.
D)Judges readily sustain the judgment of the agency where reasonable.

Question 34

Which of the following is an example of an executive function performed by a federal agency?

A)Leasing federal lands
B)Enacting procedural rules
C)Regulating internal revenue service
D)Publishing all federal rules and orders daily

Question 35

Which of the following statements is true of public goods?

A)The added cost of benefiting one person is zero or nearly so.
B)There are methods for excluding those who choose not to pay for public goods.
C)They will be produced in adequate quantities in the absence of government regulations.
D)They can be provided to consumers through a pricing system.

Question 36

Internal Revenue Service regulations are an example of _____ rules.

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

Question 37

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

Question 38

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

A)The agencies create rules that resemble laws but do not have the force of laws.
B)The federal government provides an online portal where the public can comment on proposed rules.
C)Legislative rules delineate the agency's internal operating structure and methods.
D)Procedural rules are policy expressions having the effect of law.

Question 39

Which of the following statements is true of federal agencies?

A)Federal agencies typically appoint commissioners for a life term.
B)Federal agencies avoid using the hybrid rule-making process.
C)The president has direct authority over the executive federal agencies.
D)The independent federal agencies are usually located within the departments of the executive branch of the government.

Question 40

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

A)Agency commissioners are appointed in staggered terms,typically of three years' duration.
B)Agencies must delegate a portion of their authority to Congress as they recognize that they are not the appropriate bodies to address the specific elements of certain problems.
C)The appointment of agency commissioners is done by the Senate with the advice of the president.
D)The appointment of agency commissioners for most of the independent agencies must reflect an approximate political balance between the two major parties.

Question 41

Why are the Commerce Clause and states' police power potentially in conflict?

Question 42

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

Question 43

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

Question 44

Describe the three broad categories of the federal regulatory agencies' authority.

Question 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.

Question 46

Since the late 1970s,the United States has been in a period of deregulation during which:

A)federal agencies were newly created to undertake legislative functions of the government.
B)administrative agencies acted as governments,performing purely executive,legislative,and judicial roles.
C)federal powers were separated from the powers of the states.
D)great efforts were made to reduce the role of government in big portions of American life.

Question 47

A(n) _____ is an economics argument claiming that an individual or business that is protected from risk will increase its risk-taking behavior in the future in the belief that a bailout will follow,if needed.

A)unjust enrichment
B)unconscionable contract
C)wrongful discharge
D)moral hazard

Question 48

When is government intervention in a free enterprise economy justified? Explain any two rationales for the need of government regulation.

Question 49

Elaborate on the executive and congressional constraints on agencies.

Question 50

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