Which of the following is false?
a. Product liability laws can make it unprofitable to sell shoddy merchandise, providing a substantial incentive to provide safe products independent of government regulations.
b. Asymmetric information exists when the available information is initially distributed in favor of one party to a transaction relative to another.
c. In adverse selection situations, it is rational for a seller with more information about a product to provide a truthful and complete disclosure and make that fact known to a potential buyer.
d. Moral hazard arises in part from the fact that it is costly for an insurer to monitor the behaviors of the insured party.
c
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Refer to the information provided in Figure 2.4 below to answer the question(s) that follow.
Figure 2.4Refer to Figure 2.4. The economy moves from Point E to Point B. This could be explained by
A. a change in society's preferences for hybrid cars versus motorcycles. B. an increase in economic growth. C. an increase in unemployment. D. a reduction in unemployment.
The law of diminishing returns states that as
A) the size of a plant increases, the firm's fixed cost decreases. B) the size of a plant increases, the firm's fixed cost increases. C) a firm uses more of a variable input, given the quantity of fixed inputs, the marginal product of the variable input eventually diminishes. D) a firm uses more of a variable input, given the quantity of fixed inputs, the firm's average total cost will decrease eventually.
Doug wants to start up his own business, and needs $25,000 to get it off the ground. He can either withdraw it from his savings account, where he currently earns 3 percent, or he can take out a loan for $25,000 and pay 5 percent interest. Doug should compare:
A. the implicit cost of $750 to the explicit cost of $1,250 and choose to use his savings. B. the implicit cost of $750 to the explicit cost of $1,250 and choose to borrow the money. C. the explicit cost of $750 to the implicit cost of $1,250 and choose to use his savings. D. the explicit cost of $25,750 to the explicit cost of $26,250 and choose to borrow the money.
A one-day ticket to Sea World costs $37, but a two-day pass costs $42 . What is the average cost per day for a one-day pass? For a two-day pass? What is the marginal cost of a second day at Sea World? Why might Sea World charge such a price for a second day's entrance to the park?