What does the common law encompass?

The correct option highlights that common law is primarily composed of rules and principles established through court decisions, especially those that arise in situations lacking statutory guidance. Common law develops over time through judicial interpretation and precedents set by court rulings, reflecting how judges apply legal principles to specific facts in cases. This body of law is essential in common law jurisdictions, where it serves as a source of legal standards and practices that fill in gaps where statutes do not provide clear guidance.

In contrast, legislative statutes represent laws enacted by legislatures, which do not fall under the definition of common law. Federal government regulations, while influential in shaping legal frameworks, originate from executive bodies and statutory authority rather than from judicial rulings. Local ordinances are specific to municipalities and do not contribute to the broader common law system that is derived from court interpretations. Thus, the common law's reliance on judicial decisions rather than legislative or regulatory sources is what underscores the correctness of the provided answer.