If a salesperson is paid by the volume of sales he or she makes, then the
A) moral hazard problem is diminished.
B) moral hazard problem is enhanced.
C) adverse selection problem is enhanced.
D) None of the above answers is correct.
A
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Anna's Antiques expects to get three bidders for the unique china teacup it sells. Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability. If three bidders show up at the auction and all of them are low-value bidders, what would the winning bid be?
a. Just above $100 b. $100 c. Just above $70 d. $70
When the demand for alternative investments increases, the market for a particular bond adjusts by
a. having the supply of that bond increase. b. having the supply of that bond decrease. c. having the demand for that bond increase. d. having the demand for that bond decrease.
Suppose health-care reform X makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease. One unintended effect of this reform is that some people
A) will buy more health insurance than they would have without reform X. B) may wait until they have a particular disease before they buy health insurance. C) will try to work longer hours, to earn more income, to pay for increasing health insurance premiums. D) a and c E) none of the above
If the MPC is .8 and government spending falls by $20 billion, GDP will fall by
A. $16 billion. B. $20 billion. C. $80 billion. D. $100 billion.