Question

A key passage of the Act stated that "every contract, combination in the form of trust or otherwise, in restraint of commerce among the several states, or with foreign nations, is hereby declared illegal." (LO2) a) Clayton c) U.S. Communications b) FTC d) Sherman

Short answer

The correct answer is d) Sherman. The passage is taken from the Sherman Act, which outlaws contracts or agreements in restraint of commerce and was the first federal statute to limit cartels and monopolies in the United States.

Step-by-step solution

Read the quote

The passage states, "every contract, combination in the form of trust or otherwise, in restraint of commerce among the several states, or with foreign nations, is hereby declared illegal." The quote is discussing a piece of legislation that outlaws contracts or agreements in restraint of commerce. #Step 2: Assess the options#

Review the answer choices

The student must choose from the following options: a) Clayton b) FTC c) U.S. Communications d) Sherman #Step 3: Connect the quote to the correct legislation#

Find the correct answer

The passage is taken from the Sherman Act, which was the first federal statute to limit cartels and monopolies in the United States, and one of the main antitrust laws in the U.S. Thus, the correct answer is: d) Sherman

Key concepts

Antitrust Laws

Antitrust laws are regulations that promote competition among businesses and prevent unfair business practices. These laws are essential to maintain a fair playing field in the economy and protect consumers from monopolistic behavior.
Antitrust laws primarily aim to:

• Prevent monopolies or attempts by companies to dominate a market.
• Prohibit agreements that restrain trade or eliminate competition.
• Monitor mergers and acquisitions to ensure they do not harm competition.

In the United States, one of the first and most important antitrust laws is the Sherman Act. Enacted in 1890, it was designed to combat anticompetitive practices, reduce market manipulation, and maintain economic freedom for all businesses. By enforcing these laws, the government ensures that no single entity can control a significant portion of a market, which could lead to unfair practices and higher prices for consumers.

Restraint of Commerce

The term "restraint of commerce" refers to any action or agreement that restricts free competition in business. This can include anything from formal contracts between companies to informal agreements that affect prices, output, or market conditions. Such restraints can stifle innovation, limit product availability, and result in higher prices, all of which harm consumers.
The Sherman Act specifically prohibits restraints of commerce through direct agreements that limit competitive conditions. This encompasses:

• Price fixing, where competitors agree to set prices at a certain level.
• Market division, where businesses agree to divide markets among themselves.
• Bid rigging, which involves companies conspiring to influence contract bids.

The law aims to dismantle such anti-competitive agreements, ensuring that commerce remains open and competitive, benefiting both businesses and consumers alike.

Federal Legislation

Federal legislation refers to laws enacted by the national government. These are designed to address issues that affect the country as a whole, rather than just local or state concerns. The Sherman Act is a prime example of federal legislation targeting business practices across the United States.
Within the realm of commerce, federal legislation like the Sherman Act holds significant importance as it:

• Sets nationwide standards to maintain fair competition.
• Oversees and manages interstate and international trade practices.
• Empowers federal agencies, like the Federal Trade Commission (FTC), to enforce these laws and protect public interests.

Ultimately, through federal legislation, the U.S. government can regulate commerce effectively, preventing unfair practices and fostering an environment where innovation and fair competition can thrive.