is correct answer a or d or maybe something else?

Question

when economic activity is conducted outside of government regulation, it is considered:

A. legal as long as consumers are protected
B. legal as long as taxes are paid
C. illegal because the laws of supply and demand do not apply
D. illegal because the government cannot collect taxes or regulate the business in the public's interest

Answer 1

In the U.S., the general answer is b. A substantial amount of economic activity is not regulated (or directly regulated) for the most part. The only requirement is that the business pays certain taxes (including licensing fees). For example, it is generally legal to run a catering business out of your home, but you have to pay taxes on the income.

C is definitely wrong as the laws of supply and demand apply even to illegal businesses. A is somewhat wrong depending upon what you mean by consumer protection. There are some general laws that protect consumers from fraud but for the most part the essence of an unregulated product or service is the lack of some safety protections that apply to regulated products. D is wrong because the government can collect taxes and is free to regulate the business but chooses not to do so.

NOTE: This answer assumes that you are talking about unregulated activities as opposed to activities that are subject to regulation but the business operates in the grey or black market. For businesses in the black market, D is the closest to the correct answer but it is illegal because they do not comply with the regulations not because the government can't regulate the business.

Answer 2

I'm assuming the question means in the U.S.

I hesitated over b., however prostitution and some forms of gambling are not legal but you're still expected to pay taxes on any gains from those activities, so we can't say it's legal just because you pay taxes. And by the same token, even if the consumer is protected in those transactions, that doesn't legalize the activity, so that rules out a.

On the other hand, just because a transaction takes place that isn't covered by government regulation doesn't mean it's illegal -- barter, for example. So that rules out c and d.



I got it -- e. none of the above!