Name ________________________________ Date __________________ Period _________
GOVERNMENT AND BUSINESS
Chapter
BEFORE YOU BEGIN
9
Looking at the Chapter
Fill in the blank spaces with the missing words.
Sherman
Act (1890)
Wheel-Lea Act
(1938) and the
____________ Trade
_____________
Antitrust Laws:
Controlling ____________
____________ Act
(1914)
Power and ______________
and ________________
Competition
Federal Trade
Commission Act
(1914)
Robinson-Patman
Act (1936)
Profit regulation
_____________
theory
Natural
________________
Regulation
_____________
choice theory
Price regulation
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regulation
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______________
regulation
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Name ________________________________ Date __________________ Period _________
Externalities:
Positive
externalities
Actions that produce ____________
________________ on others (third-
_______________
externalities
party effects)
Government and ways of
____________________ negative
externalities
Taxation
The court system
Regulation
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Name ________________________________ Date __________________ Period _________
Chapter
Outlining the Chapter
9
Look over the chapter paying attention to the main topics and concepts. As you look over each
section of the chapter, fill in the missing words in the outline below.
I.
Antitrust Law
A. Antitrust laws are meant to control ___________________ power and to preserve and
promote ____________________.
B. The ____________________ _________ was passed in 1890 and states that either
attempting to become a __________________ or trying to _________________ trade
is illegal.
1. The ______________________ ____________ contains two major provisions:
a. “Every contract, combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce . . . is hereby declared to be illegal.”
b. “Every person who shall monopolize, or attempt to monopolize, or
________________ or _________________ with any other person or persons
to monopolize any part of the trade or commerce . . . shall be deemed guilty of
a misdemeanor.”
C. The ___________________ ___________ of 1914 made certain business practices
illegal when their effects “may be to substantially lessen _________________ or tend
to create a __________________.” The following practices were prohibited by the Act:
1. Price _____________________ occurs when a seller charges different buyers
different prices for the same product, and when the price differences are not
related to ____________ differences.
2. _____________ contracts are arrangements whereby the sale of one product
depends on the purchase of another product or products.
3. The acquisition of a competing company’s ______________ if the acquisition
reduces _______________________.
4. ____________________ __________________ are arrangements whereby the
directors of one company sit on the board of directors of another company in the
same industry.
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D. The __________________ Trade _______________________ Act, passed
in 1914, declared illegal “unfair methods of competition in commerce.” In particular,
the Act was designed to prohibit aggressive ______________________ acts.
E. The Robinson-Patman Act, passed in 1936, protects small _____________________
from the competition of large and growing ______________ stores.
F. The Wheeler-Lea Act, passed in 1938, empowered the _______________ _________
___________________ (FTC), a government agency, to deal with false and deceptive
acts or practices by businesses.
G. One major unanswered question in antitrust policy is how _________________ or
___________________ a market is defined.
H. Are antitrust laws always applied properly?
1. Sometimes government, through its enforcement of the antitrust laws, promotes
and protects competition, and sometimes it doesn’t.
II.
Regulation
A. ________________ ___________________ regulation
1. The government regulates ______________ __________________ through price
regulation and profit regulation.
a. _______________ regulation is when a public utility commissions or other
government groups set the price the monopoly can charge.
b. ______________ regulation is when the government specifies that a natural
monopoly can earn only a certain rate of profit.
B. Theories of regulation
1. The _________________ theory of regulation states that eventually the regulated
firm will capture and control the regulatory body.
2. The __________________ choice theory of regulation states that to understand
the decisions of regulatory bodies, we must first understand how the decisions
affect the regulators themselves. The theory predicts that the outcomes of the
regulatory process will tend to favor the regulators instead of either business
interests or the public.
C. ________________ regulation is concerned with the conditions under which goods
and services are produced and the safety of these items for the consumer.
1. The ___________________ ____________ and __________ _______________
(OSHA), _________________ _________________ __________________
___________________ (CPSC), and _________________ _________________
_________________ (EPA) are examples of social regulation.
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Name ________________________________ Date __________________ Period _________
2. Some people argue that the bulk of social regulation is too
____________________ to taxpayers and only indicates an intrusive,
meddlesome government. Proponents of social regulation believe that while the
______________ are high, the __________________________ are even higher.
D. There are ______________ and _________________ of government regulation.
E. Sometimes there are __________________ effects of regulation.
III. Externalities
A. Externalities are a person’s or group’s actions that produce ______________ effects
that are felt by others. The ______________ or _________________ are external to
whoever caused them.
B. Negative externalities are _______________ side effects, or _______________ thirdparty effects.
1. Air pollution can be considered a negative externality.
C. Positive externalities are ______________ side effects, or _______________ thirdparty effects.
1. Some argue that education produces positive externalities.
D. Government and positive externalities
1. Some people argue that government should __________________ activities that
generate positive externalities for society at large.
E. Government and negative externalities
1. The government can reduce the incidence of negative externalities in three ways:
a. The ____________ _______________ can decide whether some action is a
negative externality and who has the right to do what.
b. ________________ can be used where the government regulates the amount
of the externality, such as pollution.
c. ________________ can reduce output and raise prices, and indirectly reduce
the amount of a negative externality (such as the pollutants a business emits
in the air).
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Chapter
Building Vocabulary
9
Match the terms below with the correct description. Place the letter for each term in the
appropriate blank space.
a.
b.
c.
d.
antitrust law
merger
trust
price discrimination
e.
f.
g.
h.
externality
negative externality
positive externality
public utility commission
i. natural monopoly
j. tying contracts
k. interlocking directorate
_____
1. A side effect of an action that affects the well-being of third parties
_____
2. An event or action that causes harm (an adverse side effect) to be felt by others
_____
3. A firm that has such low average total costs that it can out-compete all other
firms in the industry and become the sole survivor
_____
4. Government group that regulates public utility companies (such as electric,
water, and gas companies)
_____
5. An event or action that causes a benefit (a beneficial side effect) to be felt by
others
_____
6. Meant to control monopoly power and preserve and promote competition
_____
7. An arrangement in which the sale of one product depends on the purchase of
some other product or products
______
8. An arrangement in which the directors of one company sit on the board of
directors of another company in the same industry
_____
9. One seller charges different prices for the same product and the price differences
are not related to cost
_____
10. Two companies form by combining to act like a monopolist
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Chapter
9
AS YOU STUDY
Illustrating Economic Skills
In the space provided below, draw a cartoon which illustrates a positive and negative externality.
Be prepared to show and describe your cartoon to the rest of the class.
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Name ________________________________ Date __________________ Period _________
Chapter
9
AS YOU REVIEW
Using Economic Concepts
The table below shows the major antitrust laws and their main provisions. Complete the blank
spaces in the table.
Sherman Act of 1890
The Federal Trade
Commission Act of 1914
Determine that attempting to become a
__________________ or trying to ____________
________________ is illegal.
Declared illegal “___________ methods of
______________ in commerce.” Designed to prohibit
aggressive ___________________ acts.
_____________________
Prohibited business practices that “may be to
substantially lessen competition or tend to create a
monopoly.” The act prohibited __________
__________________, ___________
__________________, the acquisition of competing
companies’ stock if the acquisition reduces
_______________, and _______________
___________________.
______________________
of 1936
Protects small businesses from the competition of
_________ and ______________ _________
_________.
Wheeler-Lea Act of 1938
Empowered the _____________ _________
____________________ to deal with false and
deceptive acts or practices by businesses.
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Name ________________________________ Date __________________ Period _________
Chapter
AS YOU REVIEW
9
Practicing for the Test
True or False: For each of the following statements place a T in the blank if the statement is true,
and place an F is the statement is false.
_____
1. An event or action that causes harm (an adverse side effect) to be felt by others
is a negative externality.
_____
2. The court system is one way to correct for a negative externality.
_____
3. The Clayton Act states that “every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or commerce . . . is hereby declared
to be illegal.”
_____
4. The capture theory of regulation says that the regulatory body will ultimately be
operated on behalf of the regulators.
_____
5. A tying contract is an arrangement whereby the sale of one product depends on
the purchase of some other product or products.
_____
6. A company advertises its product in a deceptive manner. This would violate the
Wheeler-Lea Act.
_____
7. Economists only look at the costs of regulation.
_____
8. A firm sells its product for less in Los Angeles than it does in Dallas because the
costs of selling its product in Los Angeles are lower than the costs of selling its
product in Dallas. According to antitrust law, this is a case of price discrimination.
_____
9. Your neighbor often plays his electric guitar too loudly when you are trying to
study. This is a case of a positive externality.
_____
10. Economists refer to externalities as side effects of an action that affects the wellbeing of third parties.
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Name ________________________________ Date __________________ Period _________
Short Answer:
1. The Crude Oil Company drills for oil off of the Southern California coast. During the drilling,
some of the oil washes onshore to the beaches. The oily beaches create an annoyance to
beach-goers. Explain how this is a case of an externality.
2. Refer back to the first question about the Crude Oil Company. Describe the policies that
could be used to correct the externality problem.
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3. Explain what economists mean by the costs and benefits of regulation.
4. Describe the meaning of social regulation.
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