Deck 14: Law and Markets

Question 1

Liquidated damages are not limited to compensation for harm and are intended as penalties for particular actions.

Answer 1

False

Question 2

Contracts are governed by both common law and by statutes pertaining to particular types of contracts and transactions.

Answer 2

True

Question 3

The Coase theorem indicates that the distributive consequences of a legal standard can be independent of their efficiency consequences.

Answer 3

True

Question 4

A trade secret is almost anything that is unique and of value or potential value to a company.

Question 5

Intellectual property is generally protected indefinitely.

Question 6

The legal standard for imposing compensatory damages is higher than that for punitive damages.

Question 7

Contracts make the mortgage lending market possible.

Question 8

The principal form of damage awarded in liability cases is punitive damage.

Question 9

The appropriability of returns in the music and film industries has been adversely affected by the advancement of Internet and MP3 technology.

Question 10

One purpose of contracts is to reduce transactions costs associated with circumstances that develop during the fulfillment of the agreement.

Question 11

The benefit of a patented invention to society increases with the duration of its monopoly.

Question 12

The purpose of the tort system is to provide incentives for people and firms to take care to avoid harm.

Question 13

The advantage of civil law is that it can adjust to changing circumstances without having to wait for new statutes to be enacted by legislation.

Question 14

Breaches are permissible under circumstances where it is economically efficient not to fulfill the conditions of the contract.

Question 15

Liability costs affect the prices of products and safety decisions.

Question 16

A feasible alternative to public order provided by the law is private order based on private assurances among trading partners.

Question 17

The liability system impedes decentralized decision making on the part of producers and consumers.

Question 18

A design is defective if a "reasonable alternative design" is available to reduce or avoid a foreseeable risk.

Question 19

Trade secret protection can never be perpetual, and the secrets have to be registered in order to ensure their protection.

Question 20

A copyright must be filed with the government to be considered valid.

Question 21

Which of the following makes an invention available to others and also allows the discoverer to appropriate returns?

A) trademarking
B) branding
C) licensing
D) franchising

Question 22

Liability awards can never dissuade firms from producing certain desirable products.

Question 23

Specific performance is a form of relief provided by courts for cases in which ________.

A) there is more than one party responsible for the injury received
B) firms are unable to pay damages because they have filed for bankruptcy
C) the government is implicated in the plaintiff's lawsuit
D) it is difficult to determine the actual damages incurred as a consequence of a breach

Question 24

In ________, or judge-made law, the decisions made by judges serve as precedents for future cases, and the set of precedents establishes a body of law.

A) civil law
B) common law
C) statutory law
D) canon law

Question 25

Which of the following is characteristic of common law?

A) It is written in codes based on legal principles, and judges decide cases based on those codes and the principles expressed in them.
B) Its evolution was independent of the precedents set by public courts.
C) It typically does not use an adversarial system of litigation.
D) It can adjust to changing circumstances without having to wait for new statutes to be enacted by legislation.

Question 26

The standard of strict liability is considered by some to assign too much of the cost of injuries to firms and too little to consumers, distorting the incentives for care.

Question 27

In a case in which several parties have a role in an injury, such as a manufacturer and a distributor or a manufacturer and the government, all may be held liable.

Question 28

One of the rules used by the court for awarding damages is to put the promisee in the same position she had been in prior to signing the contract. This rule corresponds to ________.

A) consequential damages
B) reliance damages
C) liquidated damages
D) primary damages

Question 29

________ are based on the opportunity cost of the next best alternative.

A) Consequential damages
B) Reliance damages
C) Liquidated damages
D) Primary damages

Question 30

Court awards of damages take place ex post, and anticipation of those awards provides ex ante incentives to fulfill promises, while leaving the flexibility to breach contracts when it is efficient to do so. The parties to a contract may also write into the contract contingencies in the event of breach. This liquidated damages approach is ex ante and is based on the principle that ________.

A) damages are intended as penalties for particular actions
B) damages should not be limited to compensation for harm
C) more complete contracts can be more efficient
D) the misuse of a product should be anticipated in advance

Question 31

Private orderings are sustained by the adherence to ________.

A) the Constitution
B) legal sanctions
C) statutes
D) norms

Question 32

Which of the following refers to a set of rights to control a tangible or intangible thing?

A) Property
B) Norm
C) Contract
D) Tort

Question 33

Which of the following is true with regard to contracts?

A) A contract is an agreement that has no scope for bargaining.
B) In a contract both parties seek assurances.
C) Contracts are rarely entered into to induce reliance.
D) Contracts do not cover promises to take particular actions in the future.

Question 34

Punitive damages awards are governed by clear constitutional guidelines.

Question 35

A(n) ________ may be granted for an invention of "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof."

A) trademark
B) patent
C) industrial design right
D) copyright

Question 36

________ specifies the length of a patent and defines the limitations on filing lawsuits.

A) Customary law
B) Case law
C) Statutory law
D) Regulatory law

Question 37

Which of the following is a feature of property rules?

A) Property rules provide incentives to create assets.
B) Property rules inhibit bargaining.
C) Property rules pose considerable difficulties in the way of economic transactions.
D) Property rules prevent gains from trade to be realized.

Question 38

Products liability cases that are consolidated into class action lawsuits, generally increases the costs of litigation.

Question 39

Which of the following is a requirement for a trademark?

A) distinctiveness
B) strict adherence to generic expressions
C) strict adherence to fanciful expressions
D) similitude

Question 40

A ________ allows the recipient to restrict the use, reproduction, and distribution of his/her work of original expression.

A) copyright
B) license
C) label
D) brand

Question 41

In the United States and in other countries, the ________ is the principal institution which guides producers and consumers in most product safety decisions.

A) licensing system
B) warranty system
C) institution of liability
D) institution of regulation

Question 42

From the perspective of producers, damage awards ________.

A) facilitates the estimation of the ex post consequences of the producers' ex ante decisions
B) are difficult to predict
C) act as prime deterrents to insurance companies that disallow producers to insure against that risk
D) are highly predictable

Question 43

The law pertaining to product safety developed from ________, which focus on economic well-being.

A) the laws of contracts and warranties
B) the laws of property and entitlements
C) the statute of limitations
D) eminent domain

Question 44

What is common law? What is the advantage of common law and why is it an important aspect of the legal system?

Question 45

Which of the following is a demerit of the liability system?

A) The liability system is costly to operate.
B) Punitive damages awards are largely governed by strict constitutional guidelines.
C) The insurance system prohibits firms to insure against the risks of damage awards.
D) The standard of strict liability assigns too much of the cost of injuries to consumers and too little to firms, distorting the incentives for care.

Question 46

Describe the principal forms of protection for intellectual assets.

Question 47

What remedies do courts use in the event of breach?

Question 48

Which of the following is true with regard to strict liability?

A) The rationale for strict liability is "to insure the manufacturers against unfair competition."
B) Under strict liability the concept of fault is irrelevant and negligence is not required.
C) A defense that a firm used state-of-the-art design is likely to prevail when a standard of strict liability is applied.
D) Strict liability does not apply to manufacturing defects.

Question 49

The punitive damages system has been criticized because ________.

A) punitive damages awards are governed neither by statute nor clear constitutional guidelines
B) the juries are not free to address punitive damages as they see fit
C) the legal standard for imposing punitive damages is lower than that for compensatory damages
D) punitive damages are bound by many constitutional limits

Question 50

The products liability system has been criticized on equity, distributive, and efficiency grounds. The equity arguments often express a belief that ________.

A) state-of-the-art design should not be an acceptable defense in cases governed by strict liability
B) damages awarded for pain and suffering should ideally be guided by legal standards
C) the awards in many cases are insufficient and should be made significantly larger to compensate for actual losses
D) cases should be decided on the basis of fault and negligence

Question 51

Under which of the following situations are courts most likely to assess comparative damages for cases?

A) when the producer is unable to compensate for the damage caused
B) when the consumer cannot prove that the damage occurred
C) when both the producer and consumer are from different states
D) when both the producer and the consumer are responsible for the injury

Question 52

________ refers to a liability rule that permits the state to take a home for a public purpose and requires the state to compensate the owner for its objectively assessed value.

A) Entitlement domain
B) Eminent domain
C) Punitive damage
D) Compensatory damage

Question 53

Which of the following is true with regard to products liability law?

A) Products are held to have an implied warranty of merchantability.
B) The common law of products liability has changed very little since the 1950s.
C) Products liability cases that are litigated are not considered as legal precedents for future cases.
D) The law pertaining to product safety developed from the laws of property and entitlements.

Question 54

The distributive objection to products liability is that ________.

A) it is inequitable to assess damages to firms when there was nothing they could have done to prevent the injury
B) a reduction in the liability of retailers is likely to have negative consequences for businesses
C) the awards in many cases are too large and seem to provide a prize, as in a lottery, rather than providing compensation for actual losses
D) the awards in cases decided on the basis of fault and negligence are mostly inadequate

Question 55

________ is/are made in writing by the producer and, as part of the sales agreement, represent(s) obligations binding on the producer.

A) Privity of contract
B) Implicit guarantees
C) Express warranties
D) Writs of assistance

Question 56

In most jurisdictions, products liability cases are covered by a ________, which is often 4 years.

A) statute of limitations
B) statute of autonomy
C) statute of compensation
D) statute of frauds

Question 57

One of the reform measures proposed by the American Tort Reform Association is to have punitive damage awards paid to the ________.

A) plaintiff
B) defendant
C) public
D) government

Question 58

The principal and most comprehensive source of institutional guidance on safety is the law of ________.

A) contracts
B) warranties
C) property
D) torts

Question 59

When an entitlement is protected by ________, a person may infringe the entitlement but must compensate its holder for the objectively assessed harm resulting from that infringement.

A) a property rule
B) a liability rule
C) a norm
D) canon law

Question 60

Most products liability cases are filed in ________.

A) district courts
B) state courts
C) magistrates' court
D) the Supreme Court

Question 61

What are the allowable defenses under strict liability?

Question 62

Why is the products liability system considered imperfect? Use examples to support your answer.