LAW, BUSINESS, &

SOCIETY
11th
Edition

McGraw-Hill

2015 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated,
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Learning Objectives

Describe the concept of market failure

Explain some of the considerations
involved in deciding to impose
government regulations on business
practice
Explain the roles of the police power,
the Supremacy Clause, the preemption
doctrine, and the Commerce Clause in
regulating business practice
8-2

Learning Objectives

Explain when the federal government

has exceeded its authority in regulating
commerce
Describe some of the ways in which
state and local regulation affects
business practice
List some of the federal agencies that
regulate business practice
8-3

Learning Objectives

Identify the three broad categories of

federal regulatory agencies authority
Compare and contrast the federal
agencies executive, legislative, and
judicial roles
Describe the executive, congressional,
and judicial controls placed on agency
conduct to maintain appropriate
checks and balances
8-4

Learning Objectives

Analyze the Federal Communications

Commission (FCC) role in regulating
indecency in broadcasting
Evaluate criticisms of the federal
regulatory process

8-5

Need of Regulation

Instances of market failure justify

government intervention in a free
enterprise economy
Market failure is attributed to inherent
imperfections in the market

8-6

Attributes of Market Failure

Imperfect information
Monopoly - Government intervenes to
prevent anticompetitive behaviors in
marketplace
Externalities
Negative
Positive

Public goods - Unable to produce in

adequate quantities
8-7

Regulatory Life Cycle

Predictable life cycle emerges when

the government decides to regulate an
industry
Government supervision is the best
way to prevent a financial calamity

8-8

Arguments for Regulation

Necessary for the protection and

general welfare of public
Developed at the request of industry
Bureaucrats performing government
regulation are a powerful force in
maintaining and expanding that
regulation

8-9

Commerce Clause of the U.S.

Constitution

Specifies the power accorded to the

federal government to regulate
business activity
Affords Congress exclusive jurisdiction
over foreign commerce
Interstate commerce
Allows the federal government to regulate

commercial activities across the United

States
8-10

Case: Commerce Clause

Case
Heart of Atlanta Motel v. United States
379 U.S. 241 (1964)
District court

Issue
Congress used its economic authority

under the Commerce Clause to open public

accommodations to all persons

8-11

Supremacy Clause

Constitution and the laws of the United

States shall be the Supreme Law of the
Land
Supreme Court decisions have affirmed
federal governments regulatory
authority over conflicting state rules

8-12

State and Local Regulation of

Interstate Commerce

Federal government regulation of

interstate commerce is pervasive
Not exclusive in matters involving the

states police powers

Issue is whether regulation is

unconstitutional as it:
Discriminates against interstate commerce
Unduly burdens interstate commerce

8-13

Case: State and Local Regulation

of Interstate Commerce

Case
Granholm v. Heald
544 U.S. 460 (2005)

Issue
Michigan and New York statutes allow in-

state wineries to sell directly to consumers

and prohibit out-of-state wineries from
doing the same
Differential treatment constitutes explicit
discrimination against interstate commerce
8-14

Summary of State and Local

Regulation

States are responsible for regulating

the insurance industry
Involved in regulating banking, securities,

and liquor sales

States have public service commission

charged with regulating utilities in
public interest

8-15

Summary of State and Local

Regulation

Licensure
Protects the public from unsafe, unhealthy,

and substandard goods and services

Local government intervention in business
involves various licensure requirements

Rules and community welfare

Government rules become attractive when

people are victims of problems

8-16

Case: Rules and Community

Welfare

Case
Voyeur Dorm v. City of Tampa
265 F.3d 1232 (11th Cir. 2001); cert. den.

122 S.Ct. 1172 (2002)

District court

Issue
Whether the alleged activities of Voyeur

Dorm constitute adult entertainment as

contemplated by Tampas zoning
restrictions?
8-17

Federal Agencies

Agency - Any government unit other

than the legislature and the courts
Administrative law governing the
agencies addresses the entire
executive branch of government
Prominent regulatory agencies
Federal Trade Commission (FTC)
Federal Communications Commission (FCC)
Securities and Exchange Commission (SEC)
8-18

Federal Agencies: History

First federal regulatory agency Interstate Commerce Commission

Primary purpose of early agencies was
to address economic concerns
Social turbulence in 1960s led
Congress to built new agencies
directed to social reforms

8-19

Types of Federal Agencies

Executive - Located within departments

of the executive branch of the
government
Independent - Created via statutes
Possess substantial authority to regulate a

specified segment of American life

8-20

Agency Duties

Control of supply - Limit entry into

certain economic activities
Control of rates - Set the prices to be
charged for services offered within its
jurisdictions
Control of conduct
Information
Standards
Product banishments
8-21

Control of Conduct

Information - Compel companies to

disclose consumer information
Standards - Government establishes
minimum standards for private sector
Product banishments - Ban certain
products from the market if they are
harmful

8-22

Administrative Procedure Act

Enacted by Congress
Provides a framework for agency rulemaking
Details broad standards for judicial
review of agency decisions

8-23

Executive Functions

Implement policies provided in

enabling legislation and agencies rules
and regulations
Protect the public by ensuring
compliance with laws and regulations
Conduct inspections, investigations,
and collect information

8-24

Legislative Functions

Agencies create rules that become laws

Types of rules
Procedural - Delineate agencys internal

operating structure and methods

Interpretive - Offer meaning to statutes for
which agency has administrative
responsibility
Legislative - Policy expressions having the
effect of law
8-25

Rule Making

APA provides informal and formal rulemaking processes for legislative rules
Process
Publication of a Notice of Proposed Rule

Making in the Federal Register

Agency permits written comments on the
proposal or holds public hearings
Discontinues the process or prepares the
final rule
8-26

Judicial Functions

Agencies seek judicial proceedings to

enforce agency rules
Rule-making
Involves standards to be applied to future

conduct of a class of unspecified parties

Adjudication
Addressing specific parties involved in a

specific present or past dispute

8-27

Judicial Functions

Administrative hearing
Violation of a statute or rule is alleged and

affected parties are notified

Parties try to reach a settlement via
consent order

Administrative law judge (ALJ)

Failing a settlement, parties proceed for

trial
Decides all questions of law and fact and
issues a decision
8-28

Controlling the Agencies

Executive constraints
In order to avoid conservative bias of the

agency, President appoints top

administrators for various agencies

Congressional constraints
Congress can dissolve the agencies
Congress oversees agency action

Judicial review
Agency rules and orders can be challenged in

court
8-29

Case: Judicial Review

Case
Federal Communications Commission v. Fox

Television Stations
Federal Communications Commission v.
ABC
132 S. Ct. 2307 (2012)

Issue
When the government should regulate

distasteful expression over the regulated

airways?
8-30

Troubled Asset Relief Program

(TARP)

Government loaned money to giant

banks to prevent the collapse of the
American economy
Free-market advocates think TARP
subjected marketplace to a dangerous
moral hazard

8-31

Financial Reform

Dodd-Frank Wall Street Reform and

Consumer Protection Act
Designed to prevent systemic risks and

financial collapses

Critics believe Dodd-Frank threatens

small business and consumers

8-32

Regulatory Criticisms

Excessive regulation
Government rules reduce business

efficiency, curb freedom, and unjustly

redistribute resources
Leads to slower economic growth and
fewer jobs

8-33

Regulatory Criticisms

Insufficient regulation
Free market advocates believe government

intervention does not yield good results

Numbers and respected opinions are positive

Ineffective regulation
Regulatory failure are multiple
Regulatory process is corrupted by

bureaucratic problems

8-34

Further Deregulation or
Reregulation

Financial services
Free-market advocates blame the

subprime problems on government

intervention
Government failed in its oversight
responsibilities

Regulatory virtue
Capitalism without regulation and

regulators is unstable
8-35

Mixed Economy

People should acknowledge a role for

the market and government
Young people believe governments
role is necessary

8-36

Global Regulation

Regulation in the U.S. is modest

relative to the balance of the globe
Government rules are less burdensome
in America than in most nations
Cooperative and international process
Industrial nations are phasing in new
measures to promote global financial
stability
8-37