Professional Documents
Culture Documents
D. A periodic review of and a fixed termination date A. If the tie-in is necessary to assure product quality.
for government programs.
B. If the tying product is patented.
[3] Source: CMA 1286 1-28 C. Regulates the profits of radio and television
Which one of the following statements is a correct stations.
characterization of current federal policy toward political
action committees (PACs)? D. Censors program content on television.
C. Unions may help organize PACs, but corporations B. Rules against discrimination in the hiring of
may not. employees.
B. Requires the proof of breach of warranty. A. Are legal if they are necessary to assure product
quality.
C. Permits contributory negligence on the part of
consumers to be an acceptable defense by B. Are always illegal unless the input is patented.
manufacturers.
C. Are legal if used to facilitate price discrimination.
D. Tends to support plaintiff claims against
manufacturers of products that are judged to be D. Are legal under all circumstances.
inherently dangerous.
If Federal Aviation Administration regulation of airline
[10] Source: CMA 1287 1-17 passenger service increases the variable costs of individual
The intent of antitrust laws is to firms in the industry by requiring greater expenditures on
quality checks and maintenance, then
A. Establish a range of allowable profit rates for firms
in oligopolistic industries. A. In the long run, the industry will tend to have more
firms producing lower levels of output.
B. Prohibit firms from engaging in joint ventures with
foreign firms. B. Fixed costs will rise.
C. Require firms with high earnings to relinquish any C. Prices will fall in the long run.
exclusive patent rights which they own.
D. Prices will rise in the short and long run.
D. Prohibit agreements that limit individual firm
output.
[15] Source: CMA 1289 1-26
The two major functions of the Federal Trade Commission
[11] Source: CMA 1287 1-18 are
Which one of the following statements regarding the
application of antitrust rules to professional fees is true? A. Antitrust actions and consumer protection.
A. Most professionals, including physicians, lawyers, B. Antitrust actions and regulation of import quotas.
engineers, and accountants, are exempt from the
antitrust laws. C. Regulation of railroads and airlines.
B. Agreements to increase fees are legal if the quality D. Consumer protection and monitoring labor union
of services provided improves. practices.
C. Fee discrimination in any form is illegal. [16] Source: CMA 1289 1-24
All of the following are characteristic of the Taft-Hartley
D. Agreements to set either minimum or maximum Act except
fees are illegal.
A. The prohibition of a closed shop.
[12] Source: CMA 1287 1-19 B. The guarantee of the workers' right to organize.
The antitrust prohibitions against mergers that would tend
to lessen competition C. States are encouraged to pass right-to-work laws.
A. Are enforced solely by the Commerce D. The provision of descriptions of unfair labor
Department. practices committed by unions.
C. Permit utilities to refuse service to some customers [18] Source: CMA 1289 1-30
within their jurisdiction. Which one of the following statements best describes how
regulatory agencies of the U.S. government are restricted in
D. Usually set rates of return for utilities based on the the adoption of specific regulations?
cost of capital as reflected in the capital markets.
A. Regulations must be consistent with standards
established in the congressional act which created the
[14] Source: CMA 1287 1-21 agency.
Commission (EEOC) is
B. All proposed regulations must be cleared with a
central coordinating agency, the General Accounting A. To restrict enforcement of the Equal Employment
Office. Opportunity Act of 1972 to relatively small
companies in order to minimize disruptions.
C. The agencies must present proposed regulations
to all affected parties for comment. B. To rank the goal of employee productivity ahead
of the goal of equal employment opportunity
D. Businesses subject to the regulation must be considerations.
notified 1 year before the regulation will be put into
effect. C. To avoid legal remedies to achieve the goals of the
EEOC.
[19] Source: CMA 0690 1-2 D. To have businesses achieve employment mixes
The Consumer Product Safety Commission (CPSC) has reflecting the local labor pool of protected groups.
been called by its critics "the most powerful regulatory
agency in Washington." The most likely reason for this
concern is that the CPSC [23] Source: CMA 0691 1-24
State laws that make it illegal to require union membership
A. Covers all consumer products. as a condition for getting or holding a job are known as
B. May ban the production and sale of a product until A. Fair trade laws.
it has formulated a standard.
B. Fair employment laws.
C. Does not permit an industry group to adopt a
voluntary standard. C. Open shop laws.
D. Disclose the finance charge and the annual [25] Source: CMA 1291 1-19
percentage rate. Over the years, various groups and activities have been
exempted from coverage by the U.S. antitrust laws. Which
one of the following statements regarding such exemptions
[21] Source: CMA 0690 1-6 is correct?
Equal employment opportunity is concerned with, among
other issues, the recruitment and selection of employees. A A. All sales and purchases of products by American
U.S. Supreme Court ruling in 1971 involved the use of firms outside of the U.S. are automatically exempt
pre-employment tests (Griggs v. Duke Power Co.). In that from coverage by the antitrust laws.
case, which was determined under Title VII of the Civil
Rights Act of 1964, the Court ruled that pre-employment B. All resale price maintenance agreements between
tests manufacturers and retailers selling the manufacturers'
product brands are exempt from the federal antitrust
A. Given to minorities, regardless of the reason given, laws.
violate Title VII.
C. Under certain conditions, a person who wishes to
B. Are legal, as long as there is no intent to form an export trading company may obtain a
discriminate. certificate of antitrust immunity from the Commerce
Department after concurrence by the Justice
C. In any form are illegal. Department.
D. Must be directly related to job requirements. D. Water common carriers in foreign trade may enter
into price fixing and market sharing treaties or
agreements provided the agreements are ratified by
[22] Source: CMA 0691 1-21 the U.S. Senate before being put into effect.
A major policy of the Equal Employment Opportunity
The general approach to regulation by the Consumer
[26] Source: CMA 1291 1-20 Product Safety Commission is to
The Environmental Protection Agency (EPA) might control
pollution by setting effluent standards for maximum A. Levy fines against the producers of unsafe
discharge or by constructing a sliding-tax charge based on products.
the amount of effluent emitted. One advantage of the
sliding-tax charge is that B. Set safety standards for various products.
B. There is greater business incentive to discover new D. Reduce the cost of regulated products.
methods of controlling pollution.
C. It increases the necessity for the EPA to fully [31] Source: CMA 1291 1-26
understand pollution control technology. Social regulation, as exemplified by the Occupational
Safety and Health Act and by the Environmental Protection
D. It increases the degree of direct government Act, is frequently alleged to be inefficient. The perception
intervention in the economy. by firms is that this inefficiency appears to be a result of
B. Issue rules and regulations. C. Guarantees the right of self-organization and the
right to collective bargaining with management.
C. Investigate violations of statutes and rules.
D. Requires that elections of union officers be
D. Recommend penalties for violations of statutes regularly scheduled and that secret ballots be used.
and rules.
[30] Source: CMA 1291 1-25 A. U.S. wage rates with foreign wage rates adjusted
for differences in exchange rates.
C. Compliance costs are a burden for small firms,
B. Wage rates for different jobs requiring different and Congress has chosen to exempt such firms.
skills.
D. The lobby for small businesses has been so active
C. Wage rates for the same job in union and that Congress has chosen to exempt such firms.
non-union environments.
D. Wage rates for the same job in the government [39] Source: CMA 0693 1-20
and the private sector. The Clean Air Act of 1970 charged the Environmental
Protection Agency (EPA) with all of the following
responsibilities except
[35] Source: CMA 0693 1-11
The basic purpose of the Securities Exchange Act of 1934 A. Setting standards without consideration for the
was to cost of compliance to manufacturers.
C. State laws designed to prevent fraudulent or [41] Source: CMA 0693 1-22
misleading security issues. In recent years, a number of consumer groups have used a
variety of methods to persuade companies to change
D. Local laws regulating the issuance of securities for behavior. Which one of the following weapons has not
companies whose operations affect the environment. been used by consumer groups in recent years?
[42] Source: CMA 0693 1-23 C. Concerted refusals to deal or boycotts involving
Which one of the following is not a characteristic of the any third party.
Occupational Safety and Health Administration (OSHA)?
OSHA D. Tie-in sales or any effort to force a buyer to
purchase less desirable products in order to purchase
A. Encourages labor-management committees to the desired product.
formulate safety and health programs.
D. Most of these industries are permitted to earn a A. Ban discrimination against people with disabilities
return that is equitable to all consumers. in employment.
A. Allowing extensions to patent lives of D. Allow marketable permits for pollution that firms
pharmaceutical companies in order to recover time can buy or sell like any other commodity.
lost during the premarket FDA regulatory review.
C. Maintaining purity standards and regulations A. Two or more firms from different and unrelated
concerning drug composition and potency. markets.
D. Approving drugs that lack substantial evidence B. Two or more firms at different stages of the
that they will have the effects that are represented in production process.
advertisements.
C. A producer and its supplier.
[50] Source: CMA 1293 1-1 D. Two or more firms in the same market.
The Sherman Antitrust Act
C. Firms can decide on the quality of product or A. Only those belonging to the union can work.
service.
B. Belonging to the union is not necessary.
D. Regulatory bodies determine the quality and set
the price. C. Collective bargaining is not permitted.
A. Despite the CWA's prohibitions, it allows persons B. All corporations required to be registered under
to discharge pollutants into waters subject to its the Securities Act of 1933.
jurisdiction as long as navigation thereon will not be
permanently obstructed. C. All corporations required to be registered under
the Securities Exchange Act of 1934.
B. The CWA subjects all bodies of water located in
the United States, whether flowing or not, to its D. All corporations incorporated in the U.S.
protection.
D. The CWA seeks to restore and maintain the A. Keep accurate accounting records and maintain
physical and biological integrity of the waters of the an internal control structure.
United States.
B. Prepare financial statements in accordance with
U.S. and international accounting standards.
[62] Source: Publisher
Antitrust laws are intended to C. Produce information to the SEC on foreign
commerce and foreign political party information.
business.
D. Adhere to U.S. auditing standards.
B. Guarantees the right of self-organization and the D. Covered to the same extent as any other industry.
right to collective bargaining with management.
C. Designates a list of unfair labor practices on the [81] Source: CMA 1295 1-21
part of unions. Social regulation is often criticized by industry as inefficient.
D. Requires that union officials be elected on a Firms perceive this inefficiency to be a result of
regular basis and that secret ballots be used.
A. The failure to consider the marginal benefits
relative to the marginal costs.
[77] Source: CMA 1294 1-12
The Labor-Management Relations Act, also known as the B. Lenient enforcement policies.
Taft-Hartley Act of 1947,
C. Concern for the quality of life but not the quality of
A. Prohibits employers from interfering with the right products.
of employees to form unions.
D. The use of the internal revenue tax code instead of
B. Obligates employers to bargain in good faith with strict compliance penalties.
unions.
C. Outlaws yellow-dog contracts, which require [82] Source: CMA 1295 1-22
employees to remain as nonunion members. Which one of the following transactions would be
considered a violation of the Robinson-Patman Act?
D. Prohibits unions from coercing employees to
become union members. A. The sale of goods of like quality at different prices
to two different wholesalers, both of whom are
located outside the United States.
[78] Source: CMA 1294 1-13
The Sherman Antitrust Act B. The sale of goods of like quality within the United
States at different prices based on cost differences
A. Created the Federal Trade Commission. related to the method of delivery.
B. Did not establish penalties for offenders of the C. The sale of goods of like quality within the United
Act. States at different prices to two different wholesalers;
all parties are located within the same state.
C. Prohibits mergers and acquisitions that
substantially lessen competition. D. The sale of goods of like quality within the United
States but across state lines at different prices to two
D. Declares illegal, attempts at restraint of trade. different wholesalers in the same geographic area.
[79] Source: CMA 1294 1-14 [83] Source: CMA 1295 1-23
Social legislation, as exemplified by the Occupational Which one of the following examples of corporate behavior
Safety and Health Act and Environmental Protection Act, is would most clearly represent a violation of the Sherman
frequently criticized for being inefficient because the Act?
agencies
A. A retailer offers quantity discounts to large
A. Use flexible rather than rigid standards. institutional buyers.
B. Impose compliance costs that are low compared B. The members of a labor union meet and agree not
to the benefits received by society. to work for a specific firm unless the starting wage is
at least $10 per hour.
C. Rely heavily on the free market to allocate
resources. C. Two firms that are in different, unrelated industries
merge.
D. Rarely consider the marginal benefits relative to
the marginal costs. D. Two firms in the same industry agree in a
telephone conversation to submit identical bids on a
government contract.
[80] Source: CMA 1295 1-20
With respect to federal antitrust laws, regulated industries
are [84] Source: CMA 1295 1-24
The Clayton Act, as amended, prohibits all of the following
A. Completely exempt. except
B. Covered as determined by statute and the courts. A. Tying contracts that require a customer who is
buying one product to buy a related but perhaps II. National Highway Traffic Safety Administration.
unwanted product. III. Consumer Product Safety Commission.
IV. Occupational Safety and Health Administration.
B. Price discrimination by sellers. V. Environmental Protection Agency.
Which of the above agencies are considered social
C. Interlocking directorates in large competing agencies?
organizations.
A. I, II, and IV only.
D. Unfair and deceptive business practices, such as
misleading advertising. B. I and II only.
C. More than the obligation to shareholders to earn a B. Prohibits price discrimination by sellers.
profit.
C. Forbids tying contracts that require a purchaser to
D. Defined as the obligation to serve long-term, buy an unwanted product to get another.
organizational interests.
D. Forbids unfair and deceptive business practices,
such as misleading advertising.
[94] Source: Publisher
A common argument against corporate involvement in
socially responsible behavior is that [99] Source: CMA 0696 1-24
If a product is believed to pose an imminent hazard to
A. It encourages government intrusion in decision consumers, the Consumer Product Safety Commission
making. (CPSC)
B. As a legal person, a corporation is accountable for A. May seek a court order to have the product
its conduct. banned or seized.
A. Bonds be issued only under a trust indenture D. "Do you have references?"
approved by the Securities and Exchange
Commission (SEC).
[101] Source: CMA 0696 1-26
B. Public utility holding companies register with the A factory moves from a non-right-to-work state to a
SEC. right-to-work state, and the union continues to represent
the employees. In the right-to-work state,
C. New securities offered for sale in interstate
commerce be registered with the SEC. A. The employees can be forced to join the union
before they start to work.
D. All security brokers be licensed by the SEC.
B. The employees can be forced to join the union
after thirty days on the job.
[97] Source: CMA 0696 1-22
The Clayton Act of 1914 prohibits C. The employees can decide not to be involved with
the union.
A. Closed-shop labor unions.
D. The employees can be forced to make payments
B. Sellers' price discrimination. to the union.
C. Group boycotts.
[102] Source: CMA 0696 1-27
D. Oligopolies. Which one of the following approaches to regulation best
describes mandatory labeling information concerning food
content and nutritional values?
[98] Source: CMA 0696 1-23
The Federal Trade Commission Act, as amended, A. Unregulated markets subject to antitrust
enforcement.
A. Requires pre-approval from the Federal Trade
B. Disclosure of all relevant information. Commission for interlocking directorates.
B. Statutory law. B. Federal laws that prohibit the sale of securities for
companies that have not been in business for at least
C. Administrative law. 3 months.
[104] Source: CMA 1296 1-20 D. A periodic review of, and a fixed termination date
A franchisor's requirement that its franchisees buy inputs for, government programs.
from a particular supplier is
A. Illegal according to the provisions of the [109] Source: CMA 1296 1-25
Robinson-Patman Act. All of the following are legal rights of shareholders in U.S.
publicly traded companies except the right to
B. Illegal according to the principles of common law.
A. Vote on major mergers and acquisitions.
C. Legal, but the franchisor must receive approval
from the Federal Trade Commission. B. Receive dividends if declared.
D. Legal as long as such a requirement is necessary C. Vote on charter and bylaw changes.
to assure product quality.
D. Vote on major management changes.
A. Requiring disclosure of all relevant information so A. Permits employers to inquire about a job
that investors can make informed decisions. applicant's prior health insurance claims.
B. Prohibiting the issuance of non-investment grade B. Bans discrimination against employees with
securities. physical disabilities, but not those with mental
disabilities.
C. Ensuring that all shareholders have an equal vote
in the election of a board of directors. C. Requires organizations with 25 or more
D. Providing a regulatory framework for those states employees to provide reasonable accommodation for
that do not have their own securities laws. employees with disabilities.
A. Established the Federal Trade Commission. [111] Source: CMA 1296 1-30
The Insider Trading and Securities Fraud Enforcement Act
B. Prohibits collective boycotts. of 1988 in conjunction with the Insider Trading Sanctions
Act of 1984
C. Prohibits price discrimination.
A. Enacted monetary penalties for insider trading for
D. Established the concept of a patent. the first time.
D. Empowered the Securities and Exchange C. Regulatory rules being rigid and hard to change.
Commission with the authority to recover gains
resulting from the illegal use of insider information. D. Regulations increasing the cost of products and
services.
[113] Source: CMA 0697 1-25 D. Determination of fair trading prices for the
Which one of the following antitrust laws prohibits price common stock of large public companies.
discrimination and other exclusionary practices that may
give certain firms a competitive advantage over other firms
in the same market? [118] Source: Publisher
The Comprehensive Environmental Response,
A. Celler-Kefauver Act. Compensation, and Liability Act (CERCLA), also
generically known as the "Superfund," applies to the release
B. Federal Trade Commission Act. of "hazardous substances." Which of the following is
statutorily included in the definition of the term "hazardous
C. Sherman Act. substance"?
B. Gasoline.
[114] Source: CMA 0697 1-26
Which one of the following laws addresses the issue of C. Asbestos.
insider trading?
D. Natural gas.
A. Federal Trade Commission Act.
A. Taxes imposed by agencies being too high. A. It allows persons to discharge pollutants into
waters subject to its jurisdiction as long as navigation
B. Political considerations influencing policies and thereon will not be permanently obstructed.
making.
B. The CWA subjects all bodies of water located in
the United States, whether flowing or not, to its B. As a legal person, a corporation is accountable for
protection. its conduct.
A. Advertise.
[122] Source: Publisher
Sheila is a financial manager who has discovered that her B. Encroach on the practice of another financial
company is violating environmental regulations. If her manager/management accountant.
immediate superior is involved, her appropriate action is to
C. Disclose confidential information unless authorized
A. Do nothing since she has a duty of loyalty to the or legally obligated.
organization.
D. Accept other employment while serving as a
B. Consult the audit committee. financial manager/management accountant.
A. Competency.
B. Confidentiality.
C. Integrity.
D. Objectivity.
Answer (C) is incorrect because direct corporate
CMA PART 1 D contributions are not allowed. However,
Domestic Institutional corporations, trade associations, and unions may
form PACs and encourage employees to participate,
Environment of Business and company funds may be used to organize and
administer the PAC.
ANSWERS
Answer (D) is incorrect because individuals may give
funds either directly to candidates or to PACS.
Answer (B) is incorrect because direct corporate Answer (A) is correct. Tie-in sales involve a
contributions are not allowed. However, seller/lessor's requirement that the buyer/lessee
corporations, trade associations, and unions may purchase/lease another distinct product in order to
form PACs and encourage employees to participate, obtain the first. They are generally prohibited under
and company funds may be used to organize and the Clayton Act of 1914 unless a small company is
administer the PAC. attempting to enter a market or the tie-in is needed to
protect the firm's goodwill (e.g., by maintaining a
certain quality standard). However, this prohibition does not apply if such
contracts are designed to assure product quality.
Answer (B) is incorrect because tie-in sales
requirements are generally illegal if the seller has Answer (B) is incorrect because these contracts are
enough market power to restrict competition. not always illegal, and patents have nothing to do with
these provisions.
Answer (C) is incorrect because tie-in sales
requirements are generally illegal if the seller has Answer (C) is incorrect because price discrimination
enough market power to restrict competition. is prohibited under the Robinson-Patman Act of
1936.
Answer (D) is incorrect because tie-in sales
requirements are generally illegal if the seller has Answer (D) is incorrect because exclusive dealing is
enough market power to restrict competition. generally prohibited under the Clayton Act.
[7] Source: CMA 0687 1-22 [10] Source: CMA 1287 1-17
Answer (A) is incorrect because the FCC allocates Answer (A) is incorrect because profits and prices
access to the radio spectrum to those who will best are not set by antitrust laws other than to the extent
use the medium. that price discrimination is prohibited.
Answer (B) is correct. The FCC is an independent Answer (B) is incorrect because firms may enter into
agency formed in 1934 to regulate all methods of joint ventures with foreign firms.
communications over the public airwaves. The
functions of the FCC include allocating transmission Answer (C) is incorrect because patents are available
frequencies, issuing transmission licenses, fostering to all inventors, regardless of size.
effective and efficient use of communication
resources, and regulating common communications Answer (D) is correct. Antitrust laws are designed to
carriers engaged in interstate and foreign operations. promote more efficient allocation of resources,
Among the rules is a limitation on the number of greater choice for consumers, greater business
television stations that can be owned by a television opportunities, fairness in economic behavior, and
network. avoidance of concentrated political power resulting
from economic power. Competition results in greater
Answer (C) is incorrect because profits are not output and lower prices than other market structures.
regulated. Radio and TV station owners may make Agreements to limit output of a product would lessen
whatever profits they can as long as the airwaves are competition and increase the price to consumers.
used consistently with "the public interest,
convenience, and necessity."
[11] Source: CMA 1287 1-18
Answer (D) is incorrect because program content is
not censored (but inappropriate programming can Answer (A) is incorrect because professionals and
result in future loss of license). their organizations are not exempt from the antitrust
laws.
[8] Source: CMA 1287 1-14 Answer (B) is incorrect because agreements among
competitors to increase fees are illegal per se.
Answer (A) is incorrect because tariffs are to protect
businesses, not society as a whole. Answer (C) is incorrect because fee discrimination is
not illegal per se since many factors influence the fees
Answer (B) is correct. A social regulation is one for that a particular professional might charge. For
the good of society as a whole. Its purpose is to example, a professional might charge a lower price if
reach behavior that is thought to be not purely a service is to be performed during a normally slow
financial or economic. The prohibition of period.
discrimination in employment and housing are
examples. Answer (D) is correct. Lawyers, public accountants,
and other professionals have received scrutiny from
Answer (C) is incorrect because patent laws are to the FTC in recent years concerning pricing policies.
encourage new product development and protect In general, professionals cannot make agreements
inventors. that provide for either minimum or maximum fees
since price fixing by collusion among competitors is a
Answer (D) is incorrect because such rules regulate per se violation of the Sherman Act.
economic activity.
Answer (A) is incorrect because users who receive Answer (B) is correct. The Labor-Management
different volumes of service usually pay different Relations Act of 1947, or Taft-Hartley Act, placed
rates. restraints on unions that resulted in a more even
balance of power between labor and management.
Answer (B) is incorrect because rates are also based The Act provides for mediation of disputes, prohibits
on other than original cost when facilities are acquired closed shops, encourages the individual states to pass
by one utility from another utility. right-to-work laws, defines unfair labor practices,
and provides for an 80-day cooling-off period. It
Answer (C) is incorrect because utilities are does not guarantee workers the right to organize.
monopolies and are not permitted to refuse to deal This right is guaranteed by the Wagner Act of 1935.
with paying customers.
Answer (C) is incorrect because it is a provision of
Answer (D) is correct. Public utilities are natural the Taft-Hartley Act.
monopolies subject to governmental price controls.
State utility commissions establish utility rates by Answer (D) is incorrect because it is a provision of
setting rates so that capital providers earn a the Taft-Hartley Act.
reasonable return on their investment (the rate base).
The rate base is the amount of assets minus
depreciation used in the company's operations. [17] Source: CMA 1289 1-29
Answer (D) is correct. An increase in variable costs Answer (C) is incorrect because the SEC does not
will cause an increase in prices in both the short and determine the merits of securities; it evaluates whether
long run since the variable costs will have to be sufficient information is provided.
covered in both periods. If only fixed costs were
increased, only the long run might be affected. Answer (D) is incorrect because the securities laws
are not intended to influence the investment of capital
in more socially or economically beneficial ways.
[15] Source: CMA 1289 1-26
Answer (A) is correct. The Federal Trade [18] Source: CMA 1289 1-30
Commission Act of 1914 created the Federal Trade
Commission (FTC) to help provide day-to-day Answer (A) is correct. An administrative agency is a
enforcement of the antitrust laws. In addition to public board, commission, officer, etc. (other than a
having jurisdiction to enforce all of the antitrust laws, judicial or legislative body), with limited power to
the FTC has broad authority to prevent unfair enforce the law, make rules, and adjudicate disputes
methods of competition and unfair or deceptive acts involving private rights and duties. It may be
or practices. The FTC covers virtually all aspects of independent (the SEC, FTC, FCC) or executive
commerce. Any form of commercial deception is of (OMB, cabinet departments). These agencies affect
concern to the FTC. almost all aspects of the nation's social, economic,
commercial, and political life. The activity of an
administrative agency is an exception to the total amount of payments must be disclosed.
separation of powers doctrine because the agency Open-end credit transactions, such as those involving
has the power to enforce the law (executive power), credit cards, also have specific, detailed disclosure
make rules and regulations (legislative power), and requirements.
decide disputes (judicial power). Because an agency
is not a formally separate branch of government, it
exercises only that power delegated to it, and any act [21] Source: CMA 0690 1-6
outside the scope of the delegation is unconstitutional.
Answer (A) is incorrect because appropriate tests
Answer (B) is incorrect because the GAO is the audit can be given to all applicants.
arm of Congress and has no approval authority.
Answer (B) is incorrect because the tests are not
Answer (C) is incorrect because proposed legal if they are not directly related to job
regulations are made public in the Federal Register. requirements.
Answer (D) is incorrect because there is no 1-year Answer (C) is incorrect because the tests are legal if
notification requirement. related to job requirements. Professionally developed
tests that meet EEOC guidelines are most likely to
survive scrutiny.
[19] Source: CMA 0690 1-2
Answer (D) is correct. The equal employment
Answer (A) is incorrect because the Consumer opportunity laws are designed to prohibit
Product Safety Act of 1972 exempts certain discrimination in employment. Employers do,
products, e.g., aircraft, motor vehicles, food, drugs, however, have the right to use selection procedures in
and cosmetics. hiring as long as the procedures are not
discriminatory. Thus, an employer will have a defense
Answer (B) is incorrect because a ban on a product under Title VII of the Civil Rights Act of 1964 if it
is appropriate only if specific standards will be uses professionally developed pre-employment ability
ineffective. tests that are directly related to job requirements.
Answer (D) is correct. The CPSC promotes Answer (A) is incorrect because the EEOC deals
voluntary safety standards, develops and enforces mostly with large companies.
mandatory standards, prohibits unsafe products if
safety standards will not be sufficient, recalls Answer (B) is incorrect because the EEOC is not
hazardous products, furnishes information to concerned with employee productivity.
consumers, and works with state and local Answer (C) is incorrect because the EEOC attempts
governments. Thus, if a product is hazardous and to conciliate disagreements on matters within its
presents an unreasonable risk of injury and safety authority, but it has no major policy not to seek legal
standards will not adequately protect the public, the remedies, such as court orders, damage awards, or
CPSC may issue an appropriate order banning the loss of government contracts.
product. If a hazard is deemed to be imminent, it may
seek a U.S. District Court's authorization to seize the Answer (D) is correct. The EEOC has set goals and
product or halt its distribution. timetables for employers to bring female and minority
work forces up to the appropriate percentages as
they relate to the available labor pool. The means of
[20] Source: CMA 0690 1-5 achieving these goals, such as affirmative action
programs, are often highly controversial.
Answer (A) is incorrect because the Consumer
Credit Protection Act merely requires disclosure. It [23] Source: CMA 0691 1-24
does not regulate interest rates.
Answer (A) is incorrect because fair trade laws
Answer (B) is incorrect because the Act did not pertain to the prices charged by retailers.
prohibit the use of appraisal fees.
Answer (B) is incorrect because the term fair
Answer (C) is incorrect because the Act had nothing employment laws is nonsensical in this context.
to do with wage garnishment.
Answer (C) is incorrect because the term open shop
Answer (D) is correct. The Truth-in-Lending Act laws is not customarily used to describe laws that bar
applies to creditors that extend consumer credit to conditioning employment upon union membership.
individual debtors (not organizations) in amounts of
$25,000 or less. For a closed-end credit transaction, Answer (D) is correct. State right-to-work laws are
e.g., the typical car loan, the total finance charge, expressly permitted by the NLRA. They allow
annual percentage interest rate, amount financed, late individuals to work for a unionized employer without
charges, security interest held by the creditor, the being compelled to join the union or pay dues.
number and amounts of payments, due dates, and the Moreover, unions must represent all employees in the
bargaining unit, including these free riders. sliding tax charge based on the amount of effluent
emitted. This method is preferred because, as effluent
discharge increases, a company's tax increases,
[24] Source: CMA 0691 1-30 providing a strong incentive for firms to discover new
methods of controlling pollution. Rather than dictating
Answer (A) is incorrect because the airline industry technology, the tax allows firms to seek out the
has been deregulated. technology that is the most cost effective.
Answer (B) is incorrect because the banking industry Answer (C) is incorrect because the EPA would not
has been deregulated. be directly involved in technology.
Answer (C) is incorrect because the trucking industry Answer (D) is incorrect because the tax would be an
has been deregulated. indirect method of economic intervention.
Answer (A) is incorrect because the Sherman Act Answer (C) is incorrect because Congress, not the
makes illegal every restraint of trade in interstate or applicable regulatory agency, determines which
foreign commerce. industries are exempt from specific laws.
Answer (B) is incorrect because the Sherman Act Answer (D) is correct. Regulated industries such as
prohibits resale price maintenance. public utilities and banks may not be covered by the
U.S. antitrust laws. For example, the need for
Answer (C) is correct. The various exemptions from monopoly status and tight regulation by state agencies
antitrust laws include intrastate commerce, labor make energy utilities essentially exempt from antitrust
unions, regulated utilities, patents, copyrights, and laws. Banks and insurance companies, however, are
reasonable noncompetition clauses between buyers less tightly regulated and are subject to some
and sellers of businesses, partners in a partnership, provisions of the antitrust laws. Thus, different laws
and purchasers of technology or equipment. apply to different regulated industries.
Agricultural and fishing organizations, financial
institutions, broadcasting, transportation industries,
and professional baseball also have varying levels of [28] Source: CMA 1291 1-22
exemption. Moreover, in 1982, Congress enacted
the Export Trading Company Act. The purpose of Answer (A) is correct. A federal regulatory agency
the ETCA is to encourage export of U.S. produced may regulate some aspect of all industries or may
goods and services. Persons who wish to form an regulate a specific industry in accordance with power
export trading company may obtain from the delegated by Congress in the enabling legislation.
Commerce Department a certificate of antitrust Agency functions include executive, adjudicatory, and
immunity (called a certificate of review) after rulemaking activities. Such agencies, however, may
concurrence by the Justice Department. This not impose taxes.
certificate is issued if certain conditions are met.
These prohibit unfair export competition, substantial Answer (B) is incorrect because federal regulatory
lessening of competition or restraint of trade in the agencies have the power to issue rules and
U.S., unreasonable effects on U.S. prices, and sale regulations.
or resale of the goods or services in the U.S.
Answer (C) is incorrect because federal regulatory
Answer (D) is incorrect because the Sherman Act agencies have the power to investigate violations of
makes illegal every restraint of trade in interstate or statutes and rules.
foreign commerce.
Answer (D) is incorrect because federal regulatory
agencies have the power to recommend penalties for
[26] Source: CMA 1291 1-20 violations of statutes and rules.
Answer (C) is incorrect because even a bona fide Answer (C) is incorrect because OSHA and the
seniority system may violate Title VII if it is found to EPA are criticized for maintaining rigid standards that
perpetuate past discrimination. An affirmative action are mandated regardless of cost.
remedy would necessarily have the effect of
weakening such a system. Answer (D) is incorrect because compliance costs
are often quite high.
Answer (D) is incorrect because wages should be
directly related to marginal productivity.
[32] Source: CMA 1291 1-28
[30] Source: CMA 1291 1-25 Answer (A) is incorrect because the Act does not
require financial reports by management.
Answer (A) is incorrect because the CPSC does not
levy fines, although it may bring suit for violations of Answer (B) is incorrect because the Taft-Hartley Act
the Act, and a court may levy fines as a result. of 1947 designates a list of unfair labor practices on
the part of unions.
Answer (B) is correct. The Consumer Product Safety
Act created the Consumer Product Safety Answer (C) is correct. The National Labor Relations
Commission, which promotes voluntary safety Act, or Wagner Act, was designed to control the
standards, develops and enforces mandatory supply of labor while guaranteeing workers the right
standards, prohibits unsafe products if safety to organize, that is, to form, join, and assist labor
standards will not be sufficient, recalls hazardous unions. It also prohibited certain unfair labor practices
products, furnishes information to consumers, and by management. Moreover, it permits employees to
works with state and local governments. Thus, if a elect a collective bargaining agent by majority vote
product is hazardous and presents an unreasonable and provides for the NLRB. The NLRB is a federal
risk of injury and safety standards will not adequately agency that hears representation cases and
protect the public, the CPSC may issue an determines whether actions by labor or management
appropriate order banning the product. If a hazard is constitute unfair labor practices.
deemed to be imminent, it may seek a U.S. District
Court's authorization to seize the product or halt its Answer (D) is incorrect because the Landrum-Griffin
distribution. However, the emphasis of the Act of 1959 democratized unions.
Commission's work is the prevention of problems
through standard setting, not the punishment of
wrongdoers. [33] Source: CMA 1291 1-29
Answer (C) is incorrect because consumer choice is Answer (A) is incorrect because the Act did not
lessened when the CPSC keeps unsafe products off permit strikes for health and safety violations.
the market.
Answer (B) is incorrect because the union shop is still
Answer (D) is incorrect because the cost of allowed in many states; the closed shop was
regulation results in higher costs for regulated outlawed.
products.
Answer (C) is incorrect because the Act limited the
power of unions, not of employers.
[31] Source: CMA 1291 1-26
Answer (D) is correct. After the NLRA was passed
Answer (A) is incorrect because quality of life is the in 1935, unions became very powerful, strikes were
primary objective of these laws. crippling, and employees were coerced by labor
bosses. The Taft-Hartley Act placed restraints on adequate information. The Securities Acts of 1933
unions that resulted in a more even balance of power and 1934 were not a direct result of the stock market
between unions and employers. Among its many crash; instead, it was the bankruptcy of Ivar Kreuger,
provisions, the 1947 Act prohibited certain unfair the greatest swindler the world has ever known, that
labor practices by unions: coercion of employees to led to the passage of the securities acts.
join unions, discrimination against nonunion
employees except when a valid union shop agreement
is in place, refusing to bargain in good faith, [36] Source: CMA 0693 1-14
secondary strikes, featherbedding (payment by
employers for work not performed), and charging Answer (A) is incorrect because the purpose of a
new members excessive initiation fees. private placement is to avoid SEC regulation.
Answer (A) is correct. The 1934 Act was designed [38] Source: CMA 0693 1-19
to regulate securities after initial issuances. Other
purposes of the 1934 Act were to provide adequate Answer (A) is incorrect because small businesses do
information to investors and to prevent insiders from have a significant impact on jobs and the
unfairly using their information. environment; however, they often cannot absorb the
additional costs brought on by regulation.
Answer (B) is incorrect because the Securities Act of
1933 was designed to regulate new issues of Answer (B) is incorrect because Congress has
securities. elected to exempt small businesses from some social
regulation because of the cost burden on such firms.
Answer (C) is incorrect because the objective is not
to protect investors from losses, but to provide Answer (C) is correct. Social regulation embraces a
investors with adequate information upon which to variety of government requirements related to matters
base investment decisions. such as consumer protection, environmental quality,
employment discrimination, and workplace safety.
Answer (D) is incorrect because the objective was to Small businesses have sometimes been exempted
regulate securities and provide investors with from social regulations, because Congress has felt
that compliance costs would be an excessive burden behavior or the nature of its advertising. Boycotts
for small firms. These costs are relatively fixed and have sometimes been quite successful. Shareholder
are therefore higher per unit of output for smaller than resolutions have also been made at stockholder
for larger firms. Compliance costs therefore create a meetings, but such resolutions have rarely been
competitive disadvantage for small firms relative to successful. Lobbying for new laws is also an often
large firms. successful tactic. Occasionally, cooperating with the
manufacturer to find common ground has been used.
Answer (D) is incorrect because the cost burden is a Creating a competing company, however, is not a
more critical factor than small business lobbyists. consumerism tactic -- at least not yet.
[39] Source: CMA 0693 1-20 Answer (D) is incorrect because cooperative
meetings are sometimes used by consumer groups.
Answer (A) is incorrect because the standards were
established without consideration for costs of
compliance. [42] Source: CMA 0693 1-23
Answer (B) is correct. Under the Clean Air Act, Answer (A) is incorrect because OSHA encourages
individuals can initiate or participate in civil labor-management committees to formulate safety
enforcement actions. Individuals may also seek and health programs.
damages for personal injuries suffered as a result of
violations. Answer (B) is incorrect because inspections are
intended to determine whether OSHA standards are
Answer (C) is incorrect because national ambient air being followed. These standards relate to workplace
quality standards (NAAQS) have been established to safety and health.
prevent damage to items such as visibility, crops,
waterways, and buildings. Answer (C) is incorrect because OSHA has the
authority to levy civil monetary penalties of up to
Answer (D) is incorrect because national ambient air $1,000 per violation and up to $10,000 for a repeat
quality standards (NAAQS) have been established offense.
with respect to specified pollutants to protect human
health and the public welfare. Answer (D) is correct. OSHA is empowered to
conduct surprise inspections to determine whether
standards are being met. However, an employer may
[40] Source: CMA 0693 1-21 demand that the inspector obtain a search warrant.
Thus, no precipitating event must occur prior to an
Answer (A) is incorrect because the CPSC is not inspection.
dependent upon manufacturers to provide information
on product safety. Much information is obtained from
consumers. [43] Source: CMA 0693 1-24
Answer (B) is incorrect because standards are Answer (A) is incorrect because most regulated
compulsory. industries, such as public utilities, airlines, and banks,
are very capital intensive.
Answer (C) is incorrect because cost-benefit analysis
is not a consideration when products are dangerous. Answer (B) is incorrect because uncontrolled
monopoly power may result in excessive prices, poor
Answer (D) is correct. A manufacturer, retailer, or quality, and inadequate output.
distributor must notify the CPSC if it has reason to
know that a product poses a "substantial product Answer (C) is incorrect because regulated industries
hazard" because it violates a CPSC safety rule or for are often considered to be vital. Indeed, some are
other reasons. In these circumstances, the CPSC deemed to be sufficiently vital to justify public
may order the party to notify those affected, repair or ownership or the equivalent (e.g., the postal service).
replace the product, or submit its own corrective
action plan. Answer (D) is correct. Regulated industries are
usually those in which natural monopolies exist.
Regulation is imposed to prevent the abuses that may
[41] Source: CMA 0693 1-22 flourish in a noncompetitive environment and to
ensure that consumers receive adequate service at
Answer (A) is incorrect because boycotts are often fair prices. Rates are established to provide a fair and
used by consumer groups attempting to influence a reasonable return to investors, not consumers.
manufacturer's behavior.
Answer (B) is incorrect because shareholder [44] Source: CMA 0693 1-26
resolutions are sometimes used in an attempt to
influence the boards of large corporations. Answer (A) is incorrect because the Justice
Department and the FTC can enforce antitrust laws.
Answer (C) is correct. Boycotts of a manufacturer's
products are the most common tactic used by Answer (B) is incorrect because the a state attorney
consumer groups to induce a company to change its general and the FTC can enforce antitrust laws.
Answer (C) is incorrect because individual citizens Answer (A) is incorrect because the ADA bans
and the FTC can enforce antitrust laws. employment discrimination against people with
disabilities.
Answer (D) is correct. Under the Sherman Act,
violations may be civil or criminal. Criminal penalties Answer (B) is incorrect because the ADA provides
include fines and imprisonment and enforcement is by tax incentives for compliance costs.
the Justice Department. Civil suits may also be
brought by private parties, who may recover treble Answer (C) is incorrect because the ADA bans
damages. The FTC also has specific authority to discrimination against people with disabilities in
enforce the Clayton and Robinson-Patman Acts and transportation.
implied authority to enforce the Sherman Act. State
law may also provide remedies for antitrust violations. Answer (D) is correct. Title I prohibits employment
The U.S. Department of Commerce is not entitled to discrimination against qualified individuals with
bring suit for violation of antitrust laws. disabilities with respect to job applications, hiring,
promotion, training, pay, and termination. The Act
also establishes requirements for employers and
[45] Source: CMA 0693 1-25 providers of public accommodations, public
transportation, and telecommunications. Employers
Answer (A) is correct. The Sherman Act specifies must make "reasonable accommodations" for
that some type of arrangements between competitors individuals with disabilities that do not impose an
are to be considered unreasonable without inquiry. undue burden, for example, by modifying facilities
These are called per se violations. These include: and work schedules, obtaining equipment, etc.
price fixing (agreeing to any price), division of However, no federal funds are provided for
markets (agreeing where to sell), group boycotts implementation of ADA by employers.
(agreeing not to deal with another), and resale price
maintenance (limitations on buyer's resale price). The
most critical of these in terms of number of violations [48] Source: CMA 0693 1-29
prosecuted and dollars involved is price fixing.
Answer (A) is incorrect because quality standards
Answer (B) is incorrect because allocation of were established by the Environmental Protection
markets, although a per se violation, has rarely been a Agency.
problem.
Answer (B) is incorrect because fees have been
Answer (C) is incorrect because boycotts involving established for firms that emit pollutants.
third parties are not nearly as common as price fixing
prosecutions. Answer (C) is correct. Environmental laws have
established quality standards with respect to water,
Answer (D) is incorrect because tie-in sales are land, and air. One approach has permitted violations,
prohibited by the Clayton Act of 1914. but subjects violators to sliding charges depending
upon the quantity of pollutants released. Companies
that are below the standard for a particular pollutant
[46] Source: CMA 0693 1-27 can sell their rights to other firms in the industry. In
addition, tax laws have provided incentives for
Answer (A) is incorrect because many cases have environmental improvements, for example a tax credit
been filed under the Sherman Act; however, the rule for individuals who installed insulation. Similarly,
of reason has limited the number of successful windmills are encouraged by the tax laws. Moving
prosecutions. facilities to offshore sites where governmental
standards are less stringent might be undertaken by
Answer (B) is incorrect because numerous individual companies, but such action is not a
companies still engage in anti-competitive conduct. governmental device.
Answer (C) is incorrect because intent is significant; Answer (D) is incorrect because companies may buy
for example, a company that has a monopoly thrust and sell their rights to emit pollutants.
upon it is not in violation.
Answer (D) is correct. The Sherman Antitrust Act of [49] Source: CMA 0693 1-30
1890 makes illegal every contract, combination, or
conspiracy in restraint of trade in interstate or foreign Answer (A) is incorrect because the FDA can extend
commerce. Successful prosecutions have been few patent lives to allow for time lost during the regulatory
because the courts developed a rule of reason review.
stipulating that only unreasonable restraints of trade
are illegal. Thus, courts balance the anti-competitive Answer (B) is incorrect because the FDA considers
effects against the pro-competitive effects of a benefit-risk tradeoffs.
restraint of trade. Unless a restraint is unreasonable
by its very nature (a per se violation), the rule of Answer (C) is incorrect because the FDA maintains
reason applies. purity standards.
[50] Source: CMA 1293 1-1 Answer (B) is incorrect because, although consumer
and environmental groups may occasionally exercise
Answer (A) is incorrect because the Sherman Act some lobbying power, they are typically underfunded
also applies to domestic corporations. and would have little impact on legislatures in the
absence of an obvious need for social regulation.
Answer (B) is incorrect because the Taft-Hartley Act
of 1947 outlawed closed shops. Answer (C) is incorrect because there is great
difficulty in measuring both the benefits and costs of
Answer (C) is incorrect because monopolies in most social regulation.
interstate or foreign commerce are illegal; monopolies
in intrastate commerce are not covered by the Answer (D) is incorrect because no regulation is
Sherman act. Also, a company must show an desirable, but some regulation is necessary when
objective interest to monopolize. Monopoly power is market forces are ineffective.
lawful if it is obtained by superior businesses acumen.
Answer (D) is correct. Section 1 of the Sherman [53] Source: CMA 1293 1-5
Antitrust Act of 1890 makes illegal every contract,
combination, or conspiracy in restraint of trade in Answer (A) is incorrect because the Clean Air Act
interstate or foreign commerce. Some types of does not make pollution illegal; it provides
arrangements between competitors are found comprehensive regulation of air quality.
unreasonable without inquiry. These are per se
violations and include price fixing, division of markets, Answer (B) is incorrect because regulating the
group boycotts, and resale price maintenance. amount of pollution a specific company can emit is
Section 2 prohibits the acts of monopolizing or not efficient. That is why the emphasis is on the
attempting to monopolize. application of air quality standards in the air quality
control regions in the states. Moreover, the states are
required to identify the major, not all, sources of
[51] Source: CMA 1293 1-2 pollution.
Answer (A) is incorrect because the forces of supply Answer (C) is incorrect because the Act does not
and demand do not determine prices; a regulatory promote social awareness about the harm due to
agency sets limits on the price a natural monopoly can pollution; in fact, it allows some pollution if a
charge. company is willing to pay to pollute.
Answer (B) is incorrect because firms cannot easily Answer (D) is correct. The Clean Air Act allows
enter the utility industry. Great amounts of capital are companies to pollute legally if they have a permit to
needed to establish a natural monopoly. do so. Firms can buy or sell these permits, and the
result is essentially a free market that enables a firm to
seek out a technology that is most cost effective. If
Answer (C) is incorrect because quality standards the price of permits is too high, a firm will buy new
are set by the same regulatory agency that controls equipment that will not pollute. If permits can be
prices. acquired at a low cost, a company may decide to
continue producing with its old, high-pollution
Answer (D) is correct. Regulated industries such as equipment.
gas and electric utilities, most of which are natural
monopolies, have price and quality controls
established by state or local governmental regulatory [54] Source: CMA 1293 1-6
bodies. Such industries usually have inelastic demand
curves, which means regulation can help control Answer (A) is incorrect because a merger between
prices. Public utilities are monopolies because having firms in different and unrelated markets is a
more than one of each type of utility in a locality conglomerate merger.
would be inefficient. Rates are normally set to
provide owners with a reasonable return on their Answer (B) is incorrect because a merger between
investment. two or more firms at different stages of the
production process is a vertical merger.
[52] Source: CMA 1293 1-4 Answer (C) is incorrect because a merger between a
producer and a supplier is a vertical merger.
Answer (A) is correct. Social regulation concerns
quality of life issues, e.g., workplace and product Answer (D) is correct. A horizontal merger is one
between competitors in the same market. From the management without submitting to the complexities of
viewpoint of the Justice Department, it is the most corporate formation and operation.
closely scrutinized type of merger because it has the
greatest tendency to reduce competition. Answer (C) is correct. The most common form of
business organization is the sole proprietorship. A
proprietorship is easily and inexpensively organized
[55] Source: CMA 1293 1-7 because no formalities are required. Moreover, it
consists of one person (the proprietor). It is created
Answer (A) is incorrect because unions raise wages under common law whenever a person enters into
for their members and indirectly reduce wages in the business and does not choose another form or
nonunionized labor market. organization.
Answer (B) is correct. Labor unions have typically Answer (D) is incorrect because a corporation is a
worked for higher wages and better working legal entity with a legal existence separate from its
conditions for their members. Through collective owners; the formation and existence of corporations
bargaining and restrictions on membership, unions is entirely regulated by state statute.
increase the wage rates of members in comparison
with those earned by nonunionized workers. Because
of the greater cost of hiring unionized workers, the [58] Source: CMA 1293 1-11
amount of labor demanded by employers is reduced.
The workers that are unemployed as a result may Answer (A) is incorrect because the elimination of all
then seek employment in the nonunion labor market, pollution would probably be too costly for the
thereby increasing the supply and decreasing the resulting benefits.
wages in that market.
Answer (B) is incorrect because firms are more
Answer (C) is incorrect because unions raise wages supportive of cost-benefit regulatory policies.
for their members and indirectly reduce wages in the
nonunionized labor market. Answer (C) is incorrect because granting tax relief to
those firms which pollute the least is not a
Answer (D) is incorrect because unions raise wages cost-benefit policy.
for their members and indirectly reduce wages in the
nonunionized labor market. Answer (D) is correct. If environmental policies
weigh the costs and benefits of regulation, some
pollution will exist because the costs of eliminating all
[56] Source: CMA 1293 1-8 pollution will likely outweigh the benefits.
Cost-benefit considerations are reflected in, for
Answer (A) is correct. A closed shop is a workplace example, the establishment of air quality standards
in which union membership is required as a condition that do not attempt to eliminate the incidence of
of obtaining employment. The closed shop was specified pollutants and requirements for control
outlawed by the Labor-Management Relations Act technology that, for the most part, do not mandate
(Taft-Hartley Act) of 1947. In contrast with a closed use of devices that achieve the maximum pollution
shop, a union shop is still allowed in some states. In a reduction. The drawback of a cost-benefit approach
union shop, an employee is required to join the union is the difficulty of quantifying benefits.
after employment. Still other states have
right-to-work laws that allow employees to work at
any job without union membership. [59] Source: CMA 1293 1-12
Answer (B) is incorrect because, in a closed shop, all Answer (A) is incorrect because the Federal Reserve
employees must be a member of the union. System regulates banks, but does not insure deposits.
Answer (C) is incorrect because collective bargaining Answer (B) is incorrect because the FSLIC was the
is necessary in a closed shop. All workers are federal agency that formerly insured savings and loan
members of the union. associations; the FSLIC went bankrupt as a result of
the savings and loan crisis of the 1980s.
Answer (D) is incorrect because only workers who
are union members have the right to work in a closed Answer (C) is correct. Commercial bank deposits
shop. are insured up to $100,000 per account by the
Federal Deposit Insurance Corporation (FDIC), a
federal agency. It is funded by premiums paid by
[57] Source: CMA 1293 1-9 member banks.
Answer (A) is incorrect because a partnership is Answer (D) is incorrect because the treasury is not
more complex than a proprietorship, but less difficult the primary insurer of bank deposits, although it may
to form than a corporation. ultimately be asked by Congress to provide funds if
the FDIC encounters financial difficulties.
Answer (B) is incorrect because a limited partnership
can be created only pursuant to a statute. It is a form
of business organization unknown at common law. A [60] Source: Publisher
limited partnership permits investors to avoid
personal liability and the duties of day-to-day Answer (A) is incorrect because, under NEPA,
federal agencies must give environmental
considerations a weight equal to but not greater than Answer (A) is incorrect because profit percentages
that afforded nonenvironmental concerns. NEPA are not set by antitrust laws other than to the extent
augments the existing powers of federal agencies to that price discrimination is prohibited.
deal with these environmental matters.
Answer (B) is incorrect because firms may enter into
Answer (B) is correct. The provisions of NEPA joint ventures.
focus on federal governmental actions. Federal
agencies are specifically directed to incorporate an Answer (C) is correct. Antitrust laws are designed to
analysis of environment consequences in their promote more efficient allocation of resources,
decision-making processes. Actions of private greater choice for consumers, greater business
persons are affected by NEPA only when federal opportunities, fairness in economic behavior, and
involvement (approval, funding, etc.) is necessary avoidance of concentrated political power resulting
before such persons may act (e.g., federal approval from economic power. Competition results in greater
before drilling for oil in ocean waters within U.S. output and lower prices than other market structures.
jurisdiction). Otherwise, NEPA does not directly
concern activities of private persons. Answer (D) is incorrect because competition results
in greater output and lower prices than other market
Answer (C) is incorrect because, under NEPA, structures.
federal agencies must give environmental
considerations a weight equal to but not greater than
that afforded nonenvironmental concerns. NEPA [63] Source: Publisher
augments the existing powers of federal agencies to
deal with these environmental matters. Answer (A) is incorrect because a pricing agreement
among competitors, even if aimed at lowering prices,
Answer (D) is incorrect because, under NEPA, is illegal per se because it is assumed that such an
federal agencies must give environmental agreement over the long run will substantially lessen
considerations a weight equal to but not greater than competition.
that afforded nonenvironmental concerns. NEPA
augments the existing powers of federal agencies to Answer (B) is incorrect because pricing agreements
deal with these environmental matters. aimed at eliminating unfair competition and fixing
prices are illegal.
Answer (C) is incorrect because the Rivers and Answer (B) is incorrect because the government
Harbors Act of the late 1800s was the first major need not prove that the defendant controls a
piece of federal legislation promulgated to protect particular percentage of the market to establish that
U.S. waterways. Until the passage of the CWA, the an illegal monopoly or attempt to monopolize has
Rivers and Harbors Act was also used to combat occurred.
pollutive discharges, although its original purpose was
to keep waterways clear from obstruct ions to Answer (C) is correct. The purpose of antitrust laws
navigation. is to preserve and promote competition. The working
definition of monopoly in antitrust law is that the
Answer (D) is correct. The CWA (1972) defendant has the power to control prices or exclude
substantially amended the Federal Water Pollution competition. Under the Sherman Act, formation of or
Control Act of 1948. It seeks to restore and maintain the attempt to form a monopoly is illegal.
the physical and biological integrity of the waters of
the United States. Its objectives are to render water Answer (D) is incorrect because the Sherman Act
suitable for recreation and propagation of fish and prohibits monopolies and attempts to monopolize.
other wildlife and to eliminate discharges of Thus, proof of contracts, combinations, and
pollutants. conspiracies in restraint of trade is not always
necessary.
Answer (B) is incorrect because the accounting [68] Source: CIA 0594 IV-67
requirements apply only to publicly held, registered
companies under the 1934 act. Answer (A) is incorrect because the easy and
inexpensive organization is one of the most appealing
Answer (C) is correct. The accounting requirements characteristics of sole proprietorships.
of the FCPA apply to all companies required to
register and report under the Securities Exchange Act Answer (B) is incorrect because sole proprietors
of 1934. These companies must maintain books, make all management decisions, and have the rights
records, and accounts in reasonable detail that to all profits as well as the right to sell the business.
accurately and fairly reflect transactions. The FCPA Thus, the entrepreneur has freedom of action.
also requires these companies to maintain a system of
internal accounting control that provides certain Answer (C) is incorrect because, as the sole owner
reasonable assurances, including that corporate and profit-sharer, a sole proprietor has a strong
assets are not used for bribes. If payoffs are made, incentive to manage the business efficiently so as to
they must be reflected in the company's records. earn more profits.
Answer (D) is incorrect because the accounting Answer (D) is correct. The sole proprietor does not
requirements apply only to publicly held, registered enjoy the benefits of specialization. (S)he must
companies under the 1934 act. perform all management functions, including all
decisions relating to buying and selling, the acquisition
and maintenance of personnel, and the technical
[66] Source: Publisher aspects of production, advertising, and distribution.
bribery by firms that do business in foreign countries. Answer (A) is incorrect because a sole
A major ramification is that it requires all companies proprietorship is owned by one person. The sole
that must register with the SEC under the Securities proprietor is personally liable for all debts.
Exchange Act of 1934 to maintain adequate
accounting records and a system of internal Answer (B) is incorrect because general partners
accounting control. share profits and losses of the venture. Debts of a
partnership are ultimately the debts of the individual
Answer (B) is incorrect because, although some general partners.
international accounting standards have been
promulgated, they are incomplete and have not Answer (C) is correct. A shareholder owns a
gained widespread acceptance. property interest in the underlying net assets of the
corporation and is entitled to share in its profits. But,
Answer (C) is incorrect because there are no unlike a sole proprietor or a general partner, the
requirements for providing periodic reports on foreign shareholder is not subject to liability beyond his/her
commerce or foreign political party affiliations. investment.
Answer (D) is incorrect because U.S. auditing Answer (D) is incorrect because monopoly is not a
standards apply to the conduct of audits by legal form of business organization.
accountants.
Answer (C) is incorrect because all U.S. firms are Answer (B) is incorrect because double taxation is a
subject to the anti-bribery provisions. disadvantage of the corporate but not the partnership
form of business organization. Corporate income is
Answer (D) is correct. The Foreign Corrupt taxed at the corporate level, and the individual
Practices Act (FCPA) prohibits any U.S. firm from shareholders pay taxes on dividends. A partnership,
making bribes to foreign officials to influence official however, is not a taxable entity.
acts. The businesses subject to the FCPA include
corporations, partnerships, limited partnerships, Answer (C) is incorrect because partnerships can be
business trusts, and unincorporated organizations. created without formalities if two or more persons
agree to become associated as co-owners to carry the balance of power between labor and
on a business for profit. The agreement need not even management. It outlawed the closed shop, which
be explicit. A corporation, however, must be formed required union membership as a condition of
according to specific statutory requirements. obtaining employment. In addition, the Taft-Hartley
Act required unions to bargain in good faith. Also, the
Answer (D) is incorrect because partnerships are not President was given authority to obtain an injunction
subject to as many regulatory requirements as against strikes for an 80-day cooling-off period if
corporations. national health, welfare, or security was threatened.
Answer (B) is incorrect because a limited partnership Answer (A) is correct. The Robinson-Patman Act
is not used to limit the duration of the partnership. prohibits price discrimination with respect to both
buyers and sellers. Price discrimination is allowed if it
Answer (C) is correct. A primary characteristic of is to meet a competitor's price quote or if justified by
limited partnerships is that they must have both the quantity purchased.
general and limited partners. General partners have
unlimited liability for the obligations of the partnership Answer (B) is incorrect because cost increases
and are entitled to manage the business. A limited caused by government specification is not an
partner's liability is ordinarily limited to the amount of
the capital contribution to the partnership. (S)he does allowable exception to the Robinson-Patman Act.
not have a right to participate in management. A
limited partner who nevertheless has a role in Answer (C) is incorrect because the nature of a
management may become personally liable for market is not a factor in price discrimination under the
partnership obligations to third parties aware of that Robinson-Patman Act.
role.
Answer (D) is incorrect because the Justice
Answer (D) is incorrect because a limited partnership Department does not give approval for price
is not used to the authority of general partners to discrimination.
manage the business.
Answer (D) is correct. The Sherman Act makes Answer (C) is incorrect because the Antitrust
Improvements Act of 1976 amended the antitrust
illegal every contract, combination, or conspiracy in laws in various ways.
restraint of trade in interstate or foreign commerce.
Section 2 of the act prohibits monopolization or the Answer (D) is incorrect because the Federal Trade
attempt to monopolize. Commission Act of 1914 created the Federal Trade
Commission to enforce the Sherman and Clayton
acts.
[73] Source: CMA 0694 1-17
Answer (A) is incorrect because the closed shop was [76] Source: CMA 1294 1-11
outlawed by the Taft-Hartley Act.
Answer (A) is incorrect because the Taft-Hartley Act
Answer (B) is incorrect because the Taft-Hartley Act provides for an 80-day injunction against a work
did not require binding arbitration. stoppage that might imperil national security.
Answer (C) is correct. The Labor-Management Answer (B) is correct. The Wagner Act gave
Relations Act of 1947, better known as the employees the right to join unions, bargain collectively
Taft-Hartley Act, placed restraints on unions to even with employers, and engage in concerted activities for
collective bargaining. In effect, labor unions were Answer (A) is incorrect because social legislation is
exempted from antitrust laws. The National Labor criticized when standards are rigid.
Relations Board (NLRB) was formed to administer
the Act. Answer (B) is incorrect because compliance costs
are typically high.
Answer (C) is incorrect because the Taft-Hartley Act
of 1947 provided for restraints on unions to permit a Answer (C) is incorrect because the free market is
more even balance of power between labor and normally not relied upon; with certain exceptions,
management. compliance is mandatory.
Answer (D) is incorrect because the Landrum-Griffin Answer (D) is correct. Economic regulation usually
Act of 1959 requires that union officials be elected on concerns price and service to the public and is
a regular basis and that secret ballots be used. It also ordinarily industry specific. Social regulation has
requires that unions submit financial reports to the broader objectives and more pervasive effects. It
government. addresses quality of life issues, such as workplace
and product safety, pollution, and fair employment
practices, and it applies to most industries. Social
[77] Source: CMA 1294 1-12 regulation has been criticized on the grounds that it is
costly, contributes to overregulation, may inhibit
Answer (A) is incorrect because the Wagner Act of innovation, increases inflation and may place a
1935 prohibited employers from interfering with the disproportionate burden on small companies, thereby
right of employees to form unions. having an anticompetitive effect. Another criticism is
that regulators are perceived to have little concern for
Answer (B) is incorrect because the Taft-Hartley Act the relation of marginal benefits and costs. For
required unions to bargain in good faith. example, achieving total compliance with the
standards for treated wastewater may be twice as
Answer (C) is incorrect because the costly as attaining 95% of those standards. In other
Norris-LaGuardia Act of 1932 outlawed yellow-dog words, the relatively small improvements sometimes
contracts. sought by regulators may be viewed as excessively
costly by those who are regulated.
Answer (D) is correct. The Taft-Hartley Act placed
restraints on unions that resulted in a more even
balance of power between labor and management. [80] Source: CMA 1295 1-20
One provision prohibits unions from coercing
employees to become union members. Thus, the Answer (A) is incorrect because some regulated
closed shop was outlawed. The act also requires industries are subject to antitrust laws.
unions to bargain in good faith and provides for
mediation of disputes. The President of the USA was Answer (B) is correct. With respect to antitrust laws,
given authority to obtain an injunction against strikes regulated industries are covered unless specifically
or lockouts for an 80-day cooling-off period if the exempted by statute or the courts. For example,
national health, welfare, or security is threatened. regulated public utilities are specifically exempted
Also, secondary strikes and featherbedding are because they are viewed as natural monopolies.
prohibited.
Answer (C) is incorrect because the Justice
Department must look to statute or the courts to
[78] Source: CMA 1294 1-13 enforce antitrust laws.
Answer (A) is incorrect because the FTC was Answer (D) is incorrect because some regulated
created in 1914 by the Federal Trade Commission industries, such as utilities, are exempt from antitrust
Act. laws.
Answer (C) is incorrect because the Clayton Act of Answer (A) is correct. The purpose of social
1914 prohibits mergers that substantially lessen regulation is to require behavior that is thought to be
competition. beneficial for other than purely economic
considerations. However, social regulation has costs,
Answer (D) is correct. The Sherman Act makes which lead to increased prices and inflation, reduced
illegal every contract, combination, or conspiracy in innovation and consumer choice, and decreased
restraint of trade in interstate or foreign commerce. productivity. Social regulation is criticized because
Some types of arrangements between competitors the marginal benefits may not equal the marginal
are found unreasonable without inquiry. These are costs.
called per se violations and include price fixing,
division of markets, group boycotts, and resale price Answer (B) is incorrect because enforcement policies
maintenance. are rarely viewed as lenient by those to whom social
legislation is directed.
[79] Source: CMA 1294 1-14 Answer (C) is incorrect because social legislation
may show a concern for the quality of life by
regulating the quality of products. tend to create a monopoly, (2) sales that prevent the
buyer from dealing with the seller's competitors, (3)
Answer (D) is incorrect because social regulation tie-in sales (requiring a buyer to take other products
often involves noncompliance penalties. in order to buy the first product), (4) price
discrimination, and (5) interlocking directorates
(directors serve on the boards of competing firms).
[82] Source: CMA 1295 1-22 The Clayton Act does not address unfair and
deceptive business practices such as false advertising.
Answer (A) is incorrect because the act does not
apply to export sales.
[85] Source: CMA 1295 1-25
Answer (B) is incorrect because cost differences
related to delivery are a justification for charging Answer (A) is correct. The acquisition of a shoe
different prices. retailer by a shoe manufacturer is an example of
vertical integration. Vertical integration is typified by a
Answer (C) is incorrect because the act applies only merger or acquisition involving companies that are in
to sales in interstate commerce. the same industry but at different levels in the supply
chain. In other words, one of the companies supplies
Answer (D) is correct. The Robinson-Patman Act of inputs for the other.
1936, an amendment to the Clayton Act, outlaws
price discrimination that would lead to restraint of Answer (B) is incorrect because a conglomerate is a
trade. Both buyer and seller can be found guilty of company made up of subsidiaries in unrelated
price discrimination under the provisions of the industries.
Robinson-Patman Act. Price differentiation between
customers is allowed if there is a difference in costs. Answer (C) is incorrect because market extension
For instance, quantity discounts are permitted if it can involves expanding into new market areas.
be shown that larger quantities can be shipped with a
cost savings. Charging competing wholesalers Answer (D) is incorrect because product extension
different prices for similar goods would be a violation involves selling additional products in the same
of the act. markets.
[83] Source: CMA 1295 1-23 [86] Source: CMA 1295 1-26
Answer (A) is incorrect because quantity discounts Answer (A) is incorrect because blue sky laws are
are not prohibited by the Sherman Act. state laws.
Answer (B) is incorrect because the Sherman Act Answer (B) is incorrect because blue sky laws are
does not apply to labor unions. state laws.
Answer (C) is incorrect because the Sherman Act Answer (C) is correct. Blue sky laws are state laws
does not prohibit mergers; only those that could lead designed to prevent fraudulent or misleading security
to restraint of trade are outlawed. issues. The name came from the fact that some of the
earliest laws prohibited "everything under the blue
Answer (D) is correct. The Sherman Act of 1890 skies which is fraudulent."
makes illegal every contract, combination, or
conspiracy in restraint of trade in interstate or foreign Answer (D) is incorrect because blue sky laws do
commerce. Some types of arrangements, called per not regulate the environment; they regulate sales of
se violations, are considered unreasonable without investment securities.
inquiry. These violations include price fixing, division
of markets, group boycotts, and resale price
maintenance. Agreeing to submit identical bids on a [87] Source: CMA 1295 1-27
government contract would be a form of price fixing,
and thus a per se violation. Answer (A) is incorrect because the Taft-Hartley Act
did not address internal affairs such as financial
records and reports.
[84] Source: CMA 1295 1-24
Answer (B) is incorrect because the Wagner Act of
Answer (A) is incorrect because this action is 1935 gave more power to unions.
prohibited by the Clayton Act.
Answer (C) is incorrect because the Securities
Answer (B) is incorrect because this action is Exchange Act of 1934 did not address reports by
prohibited by the Clayton Act. labor unions.
Answer (C) is incorrect because this circumstance is Answer (D) is correct. The Landrum-Griffin Act of
prohibited by the Clayton Act. 1959 (the Labor Management Reporting and
Disclosure Act) requires unions to maintain financial
Answer (D) is correct. The Clayton Act of 1914 records and submit reports to the federal
prohibits (1) mergers that may lessen competition or government. The intent of the act was to extend the
provisions of the National Labor Relations Act to the
internal affairs of unions to make the organizations Answer (A) is correct. Although unions have
more democratic and give members more rights. probably been as aggressive as ever in recent years,
union membership has declined. This decline is
attributable to the fact that growth has occurred in the
[88] Source: CMA 1295 1-28 service industries rather than in the manufacturing
industries that have been the traditional strongholds of
Answer (A) is incorrect because labor unions are unions.
specifically exempted from antitrust regulation.
Answer (B) is incorrect because this is not a
Answer (B) is incorrect because intrastate commerce compelling reason for the decline in union
is specifically exempted from antitrust regulation. membership.
Answer (C) is incorrect because patents and Answer (C) is incorrect because this is not a
copyrights are specifically exempted from antitrust compelling reason for the decline in union
regulation. membership.
Answer (D) is correct. Several types of entities and Answer (D) is incorrect because this is not a
contracts are exempt from antitrust regulation. These compelling reason for the decline in union
include firms not operating in interstate commerce, membership.
labor unions, regulated public utilities, patents and
copyrights, agricultural and fishing organizations,
financial institutions, transport industries, professional [92] Source: CMA 0685 1-35
baseball, and companies qualifying under the Export
Trading Company Act. The telecommunications Answer (A) is incorrect because more members of
industry is not exempt. minorities have joined unions as the barriers of
discrimination have been removed and as their overall
representation in the labor force has increased.
[89] Source: CMA 1295 1-29
Answer (B) is incorrect because women have joined
Answer (A) is incorrect because they are examples unions as the barriers of discrimination have been
of federal agencies enforcing social regulation. removed and as their overall representation in the
labor force has increased.
Answer (B) is incorrect because they are examples of
federal agencies enforcing social regulation. Answer (C) is correct. Because the growth areas of
the economy have been in the service industries, there
Answer (C) is incorrect because they are examples has been a decline in union membership among
of federal agencies enforcing social regulation. blue-collar workers, who are largely in manufacturing
and maintenance occupations.
Answer (D) is correct. Social regulation is intended
to benefit society as a whole. The Food and Drug Answer (D) is incorrect because public sector
Administration (FDA), National Highway Traffic employment continues to grow while manufacturing
Safety Administration, Consumer Product Safety sector employment declines.
Commission, Occupational Safety and Health
Administration (OSHA), Environmental Protection
Agency (EPA), and Equal Employment Opportunity [93] Source: Publisher
Commission (EEOC) are all examples of social
agencies. Answer (A) is incorrect because a perfectly
competitive market was envisioned by classical
economics. Modern monopolies and oligopolies often
[90] Source: CMA 1295 1-30 must be subject to regulation to enforce their social
responsibilities since the limits imposed by the market
Answer (A) is incorrect because the FTC is not are ineffective.
concerned with the regulation of foreign trade.
Answer (B) is incorrect because the FTC is not Answer (B) is incorrect because the concept
concerned with the regulation of foreign trade. embraces the public or societal interest.
Answer (C) is correct. The FTC Act of 1914 Answer (C) is correct. The concept of corporate
prohibits unfair methods of competition and unfair or social responsibility involves more than serving the
deceptive acts in commerce. The basic objectives are interests of the organization and its shareholders.
to initiate antitrust actions and protect the consumer Rather, it is an extension of responsibility to embrace
public. service to the public interest in such matters as
environmental protection, employee safety, civil
Answer (D) is incorrect because price discrimination rights, and community involvement.
and unfair trade practices are merely elements of the
overall mission of the FTC. Answer (D) is incorrect because the concept
embraces the public or societal interest.
Answer (A) is incorrect because such behavior may [97] Source: CMA 0696 1-22
prevent governmental action.
Answer (A) is incorrect because the closed shop was
Answer (B) is incorrect because it is an argument for prohibited by the Taft-Hartley Act of 1947.
such behavior.
Answer (B) is correct. The Clayton Act of 1914
Answer (C) is incorrect because it is an argument for prohibits price discrimination if it directly or indirectly
such behavior. lessens competition such that it tends to create a
monopoly. The Robinson-Patman Act amended the
Answer (D) is correct. Socially responsible behavior Clayton Act to prohibit sellers of goods from
clearly has immediate costs to the entity, for example, granting, and buyers from inducing, unfair discounts
the expenses incurred in affirmative action programs, and other preferences. However, price differentials
pollution control, and improvements in worker safety. are justified by a cost savings to the seller or a good
When one firm incurs such costs and its competitor faith effort to meet, but not undercut, the lawful price
does not, the other may be able to sell its products or of a competitor.
services more cheaply and increase its market share
at the expense of the socially responsible firm. The Answer (C) is incorrect because group boycotts
rebuttal argument is that in the long run the socially were prohibited by the Sherman Act of 1890.
responsible company may maximize profits by
creating goodwill and avoiding or anticipating Answer (D) is incorrect because oligopolies are not
governmental regulation. prohibited by the Clayton Act.
[95] Source: CMA 0696 1-18 [98] Source: CMA 0696 1-23
Answer (A) is incorrect because horizontal price Answer (A) is incorrect because interlocking
fixing occurs between two competitors at the same directorates are prohibited by the Clayton Act.
level in the distribution process (e.g., between two
retailers in the same industry). Answer (B) is incorrect because price discrimination
is prohibited by the Clayton Act as amended by the
Answer (B) is correct. Resale price maintenance Robinson-Patman Act.
agreements are a form of vertical price fixing because
a manufacturer or wholesaler restricts the price that Answer (C) is incorrect because tying contracts are
may be charged by a retailer. Such agreements are prohibited by the Clayton Act.
per se violations of the Sherman Act of 1890.
Answer (D) is correct. The Federal Trade
Answer (C) is incorrect because preemptive buying is Commission Act of 1914, as amended by the
not associated with resale price maintenance. Wheeler-Lea Amendment of 1938, prohibits unfair
methods of competition and unfair or deceptive acts
Answer (D) is incorrect because tying arrangements in commerce, including false advertising. The act also
require a buyer to purchase other products in created the Federal Trade Commission (FTC) to
addition to the one that is desired. enforce the requirements of the act. The basic
objectives of the FTC are to initiate antitrust actions
and to protect the consumer public.
Answer (B) is incorrect because questions about a Answer (C) is correct. Administrative law is
disability may not be asked under the provisions of promulgated by the executive branch under a general
the Americans with Disabilities Act of 1990. grant of authority to an agency to regulate an industry.
Administrative law may also be promulgated under a
Answer (C) is incorrect because marital status is not specific grant of authority to an agency to make
a suitable subject for questioning under the civil rights detailed rules to achieve the objectives of a statute.
laws. For example, the IRS makes rules to carry out
specific statutes but is not given the general authority
Answer (D) is correct. The Equal Employment to make rules for the collection of revenue.
Opportunity Commission (EEOC) specifies several Administrative law may not go beyond the scope of
questions that cannot be asked of applicants during the statutes under which it is promulgated.
an employment interview. These include questions
regarding age, disability, arrest record, and marital Answer (D) is incorrect because judicial (common)
status. It is permissible to ask an applicant for law is created by the courts through the adjudication
references. of cases and the publication of the resulting opinions.
[101] Source: CMA 0696 1-26 [104] Source: CMA 1296 1-20
Answer (A) is incorrect because a closed shop Answer (A) is incorrect because the
requires an employee to be a member of the union in
order to get a job. Robinson-Patman Act concerns price discrimination,
not exclusive-dealing contracts.
Answer (B) is incorrect because a union shop
requires an employee to join the union after Answer (B) is incorrect because exclusive-dealing
employment. contracts are the subject of federal antitrust law. They
are not illegal under common law.
Answer (C) is correct. Some states have
right-to-work laws that allow employees to work at Answer (C) is incorrect because there is no
any job without union membership. Thus, employees requirement to seek approval from the FTC.
can decide not to be involved with a union even
though the union represents the workers in the shop. Answer (D) is correct. The Clayton Act of 1914
prohibits exclusive-dealing requirements. However, a
Answer (D) is incorrect because paying dues is franchise relationship is contractual, and the
equivalent to the requirements of a union shop. agreement is in force for a specified period. Because
the franchisee and the franchisor have a common
public identity, an exclusive-dealing contract is
[102] Source: CMA 0696 1-27 allowable if it is necessary to assure product quality.
Without the exclusive-dealing requirement, a
Answer (A) is incorrect because no labeling low-quality product sold by the franchisee could
requirements exist in an unregulated market. reflect badly on the reputation of the franchisor.
[107] Source: CMA 1296 1-23 Answer (D) is correct. A corporation is owned by
shareholders who elect a board of directors to
Answer (A) is incorrect because the Clayton Act of manage the company. The board of directors then
1914 prohibits interlocking directorates in competing hires managers to supervise operations. Shareholders
companies. do not vote on major management changes because
the powers of the board include selection and
Answer (B) is incorrect because the removal of officers and the setting of management
Robinson-Patman Act of 1936 prohibits price compensation. Shareholders do have the right to vote
discrimination. on fundamental corporate changes, e.g., mergers and
acquisitions, any changes in the corporate charter and
Answer (C) is correct. The Antitrust Improvements bylaws, and dissolution.
Act of 1976 requires corporations with annual sales
or assets exceeding $100,000,000 to give advance
notice to the Justice Department and the FTC of any [110] Source: CMA 1296 1-29
acquisition of a corporation with annual sales or
assets of $10,000,000 or more. Answer (A) is incorrect because the ADA prohibits
employers from inquiring about a job applicant's prior
Answer (D) is incorrect because the Sherman Act of health insurance claims.
1890 prohibits restraint of trade and monopoly.
Answer (B) is incorrect because the ADA applies to
both physical and mental impairments.
[108] Source: CMA 1296 1-24
Answer (C) is correct. The ADA requires
Answer (A) is incorrect because the Age organizations with 25 or more employees to provide
Discrimination in Employment Act provides reasonable accommodation for employees and job
protection for older workers. applicants with disabilities. The ADA bans
employment discrimination against people with mental
Answer (B) is incorrect because sunset laws are not or physical disabilities, provides tax incentives for
concerned with securities regulation. compliance costs, and requires remodeling of facilities
to provide access by individuals with disabilities.
Answer (C) is incorrect because laws that prohibit
the sale of alcohol on Sundays are blue laws. Another provision of the ADA is that employers are
prohibited from inquiring into a job applicant's
Answer (D) is correct. Sunset laws are provisions disability with questions concerning medical history,
that require periodic review and reenactment of prior workers' compensation or health insurance
claims, work absenteeism due to illness, past Act of 1950 prohibits the acquisition of the stock or
treatment for alcoholism, or mental illness. assets of another business if the effect may be to
lessen competition substantially or to create a
Answer (D) is incorrect because the ADA provides monopoly.
no federal funds for implementation of its provisions.
Answer (B) is incorrect because an indenture is a Answer (C) is incorrect because the Clayton Act of
contract associated with the issuance of a debt 1914 was intended to prevent monopolies. A
instrument. probability of a significant anticompetitive effect is a
basis for most violations of the act. It specifically
Answer (C) is incorrect because a secondary market addresses price discrimination, tying contracts,
registration does not expedite the issuance of exclusive dealing arrangements, mergers, and
securities. interlocking directorates.
Answer (D) is incorrect because a red-herring is a Answer (D) is incorrect because the North American
preliminary prospectus issued during the 20-day Free Trade Agreement is an agreement providing for
waiting period before the related registration free trade among the USA, Canada, and Mexico.
statement becomes effective.
Answer (C) is correct. Airline operations have been [118] Source: Publisher
almost fully deregulated by the U. S. government, for
example, with regard to departure standards, fare Answer (A) is incorrect because the definition of the
schedules, and the opportunity to eliminate term "hazardous substance" as used in CERCLA
does not include petroleum or any derivatives thereof
unprofitable routes. Despite deregulation, however, or natural gas.
airlines are still subject to federal and state labor
laws, including those governing collective bargaining. Answer (B) is incorrect because the definition of the
The National Labor Relations Board exercises its term "hazardous substance" as used in CERCLA
jurisdiction over all transportation enterprises that does not include petroleum or any derivatives thereof
furnish interstate services. or natural gas.
Answer (D) is incorrect because international fare Answer (C) is correct. Asbestos is a hazardous
schedules are an aspect of the airline industry that has substance subject to the provisions of CERCLA.
been deregulated.
Answer (D) is incorrect because the definition of the
term "hazardous substance" as used in CERCLA
[116] Source: CMA 0697 1-28 does not include petroleum or any derivatives thereof
or natural gas.
Answer (A) is correct. Federal administrative
agencies belong to the executive branch of
government. They have quasi-legislative powers [119] Source: Publisher
(rulemaking authority pursuant to enabling statutes
enacted by Congress), quasi-judicial powers (the Answer (A) is incorrect because under NEPA,
ability to adjudicate certain disputes within their federal agencies must give environmental
jurisdiction), and quasi-executive powers (for considerations a weight equal to, but not greater than,
example, to investigate and prosecute violations). that afforded nonenvironmental concerns.
However, no federal agency has taxing authority, a
power reserved to Congress. Moreover, all bills for Answer (B) is correct. The provisions of NEPA
raising revenue must originate in the House of focus on federal governmental actions. Federal
Representatives. agencies are specifically directed to incorporate an
analysis of environmental consequences in their
Answer (B) is incorrect because it is a frequently decision-making processes. Actions of private
heard criticism of federal regulatory agencies and persons are affected by NEPA only when federal
policies. involvement (approval, funding, etc.) is necessary
before such persons may act (e.g., federal approval
Answer (C) is incorrect because it is a frequently before drilling for oil in ocean waters within U.S.
heard criticism of federal regulatory agencies and jurisdiction). Otherwise, NEPA does not directly
policies. concern activities of private persons.
Answer (D) is incorrect because it is a frequently Answer (C) is incorrect because under NEPA,
heard criticism of federal regulatory agencies and federal agencies must give environmental
policies. considerations a weight equal to, but not greater than,
that afforded nonenvironmental concerns.
[117] Source: CMA 0697 1-29 Answer (D) is incorrect because NEPA augments the
existing powers of federal agencies to deal with these
Answer (A) is incorrect because insider trading is environmental matters.
prohibited by Section 10(b) of the Securities
Exchange Act of 1934 and by the SEC's Rule 10b-5.
[120] Source: Publisher
Answer (B) is incorrect because an issuer that wishes
to make an interstate offering of new securities to the Answer (A) is incorrect because the CWA broadly
public must file a registration statement with the SEC. prohibits any discharges of pollutants into waters,
except if in compliance with the act. Impairment of
Answer (C) is incorrect because the Securities navigation is irrelevant.
Exchange Act of 1934 provides rules with regard to
proxy solicitations and tender offers. Answer (B) is incorrect because, to be subject to the
CWA, the waters must be "navigable waters."
Answer (D) is correct. The SEC is charged with
enforcement of federal securities laws. Under the Answer (C) is incorrect because the Rivers and
securities Act of 1933, the offer or sale of a security Harbors Act of the late 1800s was used to combat
to the public requires registration with the SEC pollutive discharges, although its original purpose was
absent a specific exemption. However, the 1933 act to keep waterways clear from obstructions to
navigation. rights, and community involvement.
Answer (D) is correct. The CWA (1972) Answer (D) is incorrect because the concept
substantially amended the Federal Water Pollution embraces the public or societal interest.
Control Act of 1948. It seeks to restore and maintain
the physical and biological integrity of the waters of
the United States. Its objectives are to render water [124] Source: Publisher
suitable for recreation and propagation of fish and
other wildlife and to eliminate discharges of Answer (A) is incorrect because such behavior may
pollutants. prevent governmental action.
Answer (A) is incorrect because no information is Answer (C) is incorrect because each is an argument
given regarding costs. Only selling prices and for such behavior.
quantities are given.
Answer (D) is correct. Socially responsible behavior
Answer (B) is incorrect because AC represents clearly has immediate costs to the entity, for example,
greater satisfied demand. the expenses incurred in affirmative action programs,
pollution control, and improvements in worker safety.
Answer (C) is correct. The area ABC represents the When one firm incurs such costs and its competitor
efficiency gain from antitrust action. It is the increase does not, the other may be able to sell its products or
in productivity (benefits to society) from the increased services more cheaply and increase its market share
quantity and lower prices resulting from the antitrust at the expense of the socially responsible firm. The
action. rebuttal argument is that in the long run the socially
responsible company may maximize profits by
Answer (D) is incorrect because total benefit is creating goodwill and avoiding or anticipating
represented by the greater quantity produced (area governmental regulation.
CBQ2Q1).