Ch15 Product Liability and Consumer Test Questions & Answers

Business Law with UCC Applications, 15e (Sukys)

Chapter 15 Product Liability and Consumer Protection

1) In his book Law and Society: Critical Approaches, author Gerald Turkel states that public policy is the equivalent of Max Weber's social consensus in that it "refers to the idea that certain activities affect the entire social structure and must be regulated by the government."

Difficulty: 2 Medium

Topic: Product Liability

Learning Objective: 15-02 Explain the difference between public interest and public policy.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

2) In the "Opening Case Round 2," Macrie v. SDS Biotech, the Court used the "risk-adaptability" analysis in making its decision.

Difficulty: 3 Hard

Topic: Product Liability

Learning Objective: 15-02 Explain the difference between public interest and public policy.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

3) A child is injured after swallowing a piece of glass hidden in a jar of jam. A court will award money for the injuries based on strict product liability: the piece of glass was a careless action that was both the actual and the proximate cause of the victim's injury.

Difficulty: 3 Hard

Topic: Product Liability

Learning Objective: 15-03 Explain the difference between negligence and strict liability.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

4) A plaintiff in a strict liability case may recover punitive damages.

Difficulty: 3 Hard

Topic: Product Liability

Learning Objective: 15-03 Explain the difference between negligence and strict liability.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

5) Under the doctrine of strict liability, when a product is unavoidably dangerous, a manufacturer has a duty to warn consumers of potential injuries.

Difficulty: 2 Medium

Topic: Product Liability

Learning Objective: 15-03 Explain the difference between negligence and strict liability.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

6) A successful plaintiff in a product liability suit can only recover punitive damages if the manufacturer disregarded federal statutory regulation.

Difficulty: 2 Medium

Topic: Product Liability

Learning Objective: 15-03 Explain the difference between negligence and strict liability.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

7) According to the FTC's "Cooling-Off" Rule, consumers have 48 hours (two days) to cancel an order amounting to over $50.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-04 State the purpose of the Consumer Product Safety Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

8) The purpose of a negative option rule is to switch customers from buying the advertised merchandise to buying something else that is usually more expensive.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-05 Explain the enforcement of the Federal Trade Commission Act.

Bloom's: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

9) An FTC order, under which a company agrees to stop a disputed practice without necessarily admitting that it violated the law, is called a dunning letter.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-05 Explain the enforcement of the Federal Trade Commission Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

10) Persons who receive unordered merchandise in the mail may have a private cause of action and may ask for a consent order from the FTC.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-06 Develop a list of unfair or deceptive practices.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

11) If the seller of an automobile believes that the mileage reading on the odometer is incorrect, the disclosure statement must indicate that the actual mileage is unknown.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-06 Develop a list of unfair or deceptive practices.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

12) The Federal Trade Commission requires used car dealers in most states to display statements that the cars are sold "as is" if the cars are sold with limited warranties.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

13) The Federal Trade Commission defines a "dealer" as anyone who sells more than five (5) used cars in a 12-month period. The law covers the sale of automobiles, light-duty vans, and light-duty trucks.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

14) The FTC's "Cooling-Off" Rule applies to sales that are entered completely by phone or by mail.

Difficulty: 2 Medium

Topic: The Consumer Credit Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

15) Robin orders $1,500 of merchandise from Whamazon.com. If no delivery date is promised, Internet must ship the merchandise within thirty (30) days.

Difficulty: 3 Hard

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

16) A 900 telephone number bills the vendor for the telephone charge.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

17) "Slamming" is the illegal practice of adding channels to a consumer's cable service without permission.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

18) The APR is calculated by consumers with tables provided by the Federal Trade Commission.

Difficulty: 2 Medium

Topic: The Consumer Credit Laws

Learning Objective: 15-08 Identify the function of the Truth-in-Lending Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

19) The Equal Credit Opportunity Act makes it illegal for businesses to discriminate against credit applicants receiving public assistance income.

Difficulty: 2 Medium

Topic: The Consumer Credit Laws

Learning Objective: 15-08 Identify the function of the Truth-in-Lending Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

20) A credit cardholder is liable for all unauthorized charges if he or she does not report the unauthorized charges within twenty days of receiving a statement on which the unauthorized charges appear.

Difficulty: 3 Hard

Topic: The Consumer Credit Laws

Learning Objective: 15-09 Explain the latest amendments to the Truth-in-Lending Act.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

21) Jarvis rents an apartment for a period of two months. His lease is governed by the Consumer Leasing Act.

Difficulty: 3 Hard

Topic: The Consumer Credit Laws

Learning Objective: 15-10 Explain the requirements of the Consumer Leasing Act.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

22) Which of the following is true of public interest and public policy?

A) Public interest promotes behavior complying with the public consensus, while public policy refers to the idea that certain activities affect the entire social structure.

B) Public interest is the consensus and public policy is the coercive social engineering strategy by which that consensus is implemented.

C) Public interest promotes the making of safe goods to coerce the public policy to maintain a social structure that promotes health and safety, and prevents illness and injury.

D) To meet the goal of public policy, public interest insists that manufacturers, sellers, and distributors compensate a victim, who is injured by an unsafe product.

Difficulty: 2 Medium

Topic: Product Liability

Learning Objective: 15-02 Explain the difference between public interest and public policy.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

23) Under the doctrine of ________, the principal consideration is the safety of a product, not the conduct of the manufacturer or supplier of the goods.

A) public policy

B) negligence

C) public interest

D) strict liability

Difficulty: 2 Medium

Topic: Product Liability

Learning Objective: 15-03 Explain the difference between negligence and strict liability.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

24) The prime target of the ________ has been handguns.

A) Consumer Product Safety Act

B) dangerous per se rule

C) telemarketing sales rule

D) negative option rule

Difficulty: 2 Medium

Topic: Product Liability

Learning Objective: 15-03 Explain the difference between negligence and strict liability.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

25) Which of the following is not a requirement for strict product liability?

A) The product must be in a defective condition when the defendant sells it.

B) The product must be unreasonably dangerous to the user or consumer because of its defective condition.

C) The defective condition must be the proximate cause of the injury or damage.

D) The defective condition of the goods must have been changed from the time the product was sold to the time the injury occurred.

Difficulty: 2 Medium

Topic: Product Liability

Learning Objective: 15-03 Explain the difference between negligence and strict liability.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

26) A knife made by Knife Co. has a metal handle with no warning, and the manufacturer has received reports that some consumers have received electrical shocks when attempting to use the knife as a screwdriver while installing an electrical outlet. Athena is one such consumer and decides to sue the manufacturer and the seller. Which of the following is true of this situation?

A) Athena can sue the manufacturer, since there is no specific warning label on the knife.

B) Athena cannot file a suit as a warning label may not reduce the likelihood of an injury in case of a knife.

C) Athena cannot file a suit against the manufacturer, since the danger presented by the product is obvious.

D) Athena can bring a lawsuit against the manufacturer, stating that the warning on the product was inadequate.

Difficulty: 3 Hard

Topic: Product Liability

Learning Objective: 15-03 Explain the difference between negligence and strict liability.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

27) Local business activity carried on within state boundaries is known as:

A) public commerce.

B) interstate commerce.

C) intrastate commerce.

D) local commerce.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-04 State the purpose of the Consumer Product Safety Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

28) Jackson Motors tells Sue, a consumer, that Bliss Automobiles are made with metal bodies when they are in fact made of fiberglass. This would be considered a(n):

A) fraudulent misrepresentation.

B) sales puffery.

C) bait-and-switch scheme.

D) act of dunning.

Difficulty: 3 Hard

Topic: Consumer Protection Laws

Learning Objective: 15-06 Develop a list of unfair or deceptive practices.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

29) Which of the following entities are allowed to send merchandise through the mail to people who did not order it?

A) Hospitals

B) Local businesses

C) Governmental units

D) Charitable organizations

Difficulty: 3 Hard

Topic: Consumer Protection Laws

Learning Objective: 15-06 Develop a list of unfair or deceptive practices.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

30) David went to the store to purchase a $15 MP3 player, advertised in the paper. The salesperson was encouraged by the store not to sell that MP3 player since it created a loss for the store. Instead, the salesperson told David that although the MP3 player was on sale, it was an undesirable, bottom-of-the-line product, and that David would be much happier with an Apple iPod Nano CD player for $250. The store:

A) acted in good faith when it tried to offer a better product.

B) can be sued under the policy of negligence and strict liability.

C) can be held guilty of a bait-and-switch scheme.

D) can be held guilty of fraudulent misrepresentation.

Difficulty: 3 Hard

Topic: Consumer Protection Laws

Learning Objective: 15-06 Develop a list of unfair or deceptive practices.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

31) Even though Spice gives her four-year-old car to Homeless Helpers Charity, she:

A) need not provide an odometer statement.

B) must provide an odometer statement.

C) need not provide an odometer statement, since the car is not over 15 years old.

D) must set the odometer to zero before resale.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-06 Develop a list of unfair or deceptive practices.

Bloom's: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

32) Which of the following is true of the "Cooling-Off" Rule?

A) It gives consumers an opportunity to change their minds after signing contracts with people who come to their homes for product sales.

B) It allows sales of consumer goods or services under $25, made away from the seller's place of business, to be cancelled within three business days after the sale.

C) It requires the seller to give the buyer one copy of a cancellation form, which the buyer may send to the seller any time before the third business day after the sale.

D) It does not apply to consumer product parties given in private homes and to sales made in rented hotel rooms or restaurants.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

33) To which type of transaction does the negative option rule apply?

A) Subscription to CD or DVD clubs that sends products on a regular basis and require the consumer to opt out of the next shipment

B) Buying used cars

C) Subscription to telephone services

D) Buying goods via telephone or Internet

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

34) Under the ________, sellers must ship orders within the time promised in their advertisements. If no time period is promised, sellers must either ship the order within 30 days or send the consumer an option notice.

A) telemarketing sales rule

B) negative option rule

C) Cooling-Off Rule

D) Mail and Telephone Order Rule

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

35) Which of the following statements holds true of the FTC's Telemarketing Sales Rules?

A) Calling times are restricted to anytime during business days.

B) A telemarketer is allowed to call a consumer without requiring the consumer's consent.

C) Telemarketers must state the total cost of the products or services offered and that the sale is final or nonrefundable.

D) Telemarketers are excused from disclosing the name of the seller, and what they are selling before they make their pitch.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

36) The ________ is an attempt by the federal government to reduce the use of unsolicited commercial e-mails on the Internet.

A) Can Spam Act

B) Mail and Telephone Order Rule

C) Truth-in-Mailing Act

D) Anti-Slamming Law

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

37) Congress passed the ________ which requires lenders to disclose the finance charge and the annual percentage rate.

A) Fair Credit Reporting Act

B) Equal Credit Opportunity Act

C) Truth-in-Lending Act

D) Fair Debt Collection Practices Act

Difficulty: 2 Medium

Topic: The Consumer Credit Laws

Learning Objective: 15-08 Identify the function of the Truth-in-Lending Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

38) Renee applied for credit to open her own beauty salon. The bank denies her the credit after learning she was recently divorced and receives public assistance income. Which of the following federal laws did the bank violate?

A) The Fair Debt Collections Act

B) The Equal Credit Opportunity Act

C) The Truth-in-Lending Act

D) The Fair Credit Reporting Act

Difficulty: 3 Hard

Topic: The Consumer Credit Laws

Learning Objective: 15-08 Identify the function of the Truth-in-Lending Act.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

39) Cristina receives a new credit card from Seventh National Bank that does not provide a means for a retailer to verify that the holder of the card is in fact authorized to use it. The next day, Cristina discovers that she has lost her card. As soon as she discovers the card is missing, she calls Seventh National to report the loss. Already, $620 worth of unauthorized charges have been made on her credit card. Under the Truth-in-Lending Act, Cristina will:

A) have to pay for the entire $620 of unauthorized charges.

B) have to pay for $50 of the unauthorized charges.

C) not have to pay any amount of the unauthorized charges.

D) have to pay for 50% of the unauthorized charges.

Difficulty: 3 Hard

Topic: The Consumer Credit Laws

Learning Objective: 15-09 Explain the latest amendments to the Truth-in-Lending Act.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

40) After receiving her credit card bill, Claire feels that the credit card company has made a mistake. Several transactions are not hers. The law that has established procedures for the prompt handling of such billing disputes is known as the:

A) Fair Credit Reporting Act.

B) Fair Credit Billing Act.

C) Fair Debt Collection Practices Act.

D) Truth in Billing Act.

Difficulty: 3 Hard

Topic: The Consumer Credit Laws

Learning Objective: 15-09 Explain the latest amendments to the Truth-in-Lending Act.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

41) Mary contracts to lease an automobile from Zippo Sales with payments of $300 per month for a year and a final balloon payment of $1,200. This final payment is:

A) lawful, since it satisfies the requirements of the Consumer Leasing Act.

B) unlawful, since it exceeds $1,000.

C) unlawful, as it exceeds three times the average monthly payment.

D) lawful, since both parties have contracted on mutual agreement.

Difficulty: 3 Hard

Topic: The Consumer Credit Laws

Learning Objective: 15-10 Explain the requirements of the Consumer Leasing Act.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

42) Alex, a painting contractor, purchased a movable Little Giant basket platform from Builder's Equipment Co. from which he or his employees could paint up to sixty feet off the ground. The platform malfunctioned, and Alex was injured when he fell from thirty feet. Discuss the type of product liability claim that Alex might bring against Builder's and Little Giant.

Difficulty: 3 Hard

Topic: Product Liability

Learning Objective: 15-02 Explain the difference between public interest and public policy.; 15-03 Explain the difference between negligence and strict liability.; 15-01 Describe the link between social engineering and the law.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

43) Roberts bought a new ride-on lawn mower and allowed his son, Don, to be the first person to drive it. Due to a factory defect, the mower's gearshift stuck in reverse. Don was seriously injured when the mower backed into a ditch and tipped over. When Don sued the manufacturer for his injuries, the manufacturer argued that it was not liable because Don had not purchased the mower. Is Don likely to win his case? Why or why not?

Difficulty: 3 Hard

Topic: Product Liability

Learning Objective: 15-03 Explain the difference between negligence and strict liability.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

44) Xena's 1998 car's odometer stops working, and she does not repair it for six months because she is out of the country on business. Her family members drive her car while she is away. Xena is preparing to sell her car and honestly does not know the precise mileage on the car. Discuss what actions the law requires her to take after repairing the odometer while selling her car.

Difficulty: 3 Hard

Topic: Consumer Protection Laws

Learning Objective: 15-06 Develop a list of unfair or deceptive practices.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

45) MacLean went to an appliance store to buy an advertised camcorder. The salesperson discouraged him from buying the advertised product, saying that it was of very poor quality. The salesperson tried to talk MacLean into buying a more expensive camcorder of better quality. Discuss the case.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-06 Develop a list of unfair or deceptive practices.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

46) Joslin orders merchandise by phone from Marginal Enterprises with no stated delivery date. When she does not receive it after a month, she contacts Marginal who indicates that due to a strike at their production plant, delivery that normally takes one month will take two months. Discuss Joslin's legal options.

Difficulty: 3 Hard

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

47) Dillon received a call from a 900 telephone number and called it back without knowing that she would have to pay for the call. The telemarketer did not warn her about the cost of the call. She realized, for the first time when she received the telephone bill, that there was a charge for the call. Discuss.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

48) Jasmine discovered that she had been slammed by her old company, Voicetone, after she had paid her telephone bill to the company, Distant Enterprise. Discuss Jasmine's legal rights.

Difficulty: 2 Medium

Topic: Consumer Protection Laws

Learning Objective: 15-07 Identify several FTC rules designed to protect the consumer.

Bloom's: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

49) Samantha applied for a personal loan at a local bank in Illinois. The bank asked her to fill in an application form in which she was asked for her employment and marital status, as well as her age and her Social Security number. After reviewing her application, the bank denied her the loan because, it said, she was a 43-year-old divorcee—albeit a successful attorney—who received alimony payments and therefore, constituted a high risk. Analyze the case and Samantha's rights.

Difficulty: 3 Hard

Topic: The Consumer Credit Laws

Learning Objective: 15-08 Identify the function of the Truth-in-Lending Act.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

50) Justin, who is on a business trip 500 miles away from home, decides to try a "free" Internet service that requires a credit card number and ends up costing $275. Justin wants to contest this charge. Explain in detail what he should do.

Difficulty: 3 Hard

Topic: The Consumer Credit Laws

Learning Objective: 15-09 Explain the latest amendments to the Truth-in-Lending Act.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

51) Greenday Bank hires an agency to collect debt from one of its credit customers, Leon. The agency contacts Leon on his phone regarding the payment of the debt. Leon cites a family emergency and promises to visit the bank the next week. However, the agency sends a debt collector to Leon's house at 8 P.M. The debt collector does not find Leon at home and inquires about his whereabouts with the neighbors, telling them that Leon is indebted to Greenday Bank. The neighbors inform the debt collector that Leon is visiting his ill mother in Virginia. Analyze the case with regards to consumer credit laws.

Difficulty: 3 Hard

Topic: The Consumer Credit Laws

Learning Objective: 15-09 Explain the latest amendments to the Truth-in-Lending Act.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation