The problem that results from an agent, who is imperfectly monitored by the principal, engaging in dishonest or otherwise undesirable behavior is called
moral hazard.
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The percentage change in the quantity demanded in response to a percentage change in the price is known as the
A) slope of the demand curve. B) excess demand. C) price elasticity of demand. D) All of the above.
According to the Coase theorem, efficient solution of an externality problem:
a. can be achieved when any one of the parties to a transaction is assigned a property right. b. can be achieved when transaction costs borne by parties to a transaction are high. c. can be achieved only if one particular party is assigned the property right. d. can be achieved only if both the parties to a transaction are assigned the property rights.
If the market price is $6, what is the firm’s short-run economic profit?
a. $0 b. $15 c. $12 d. $18
Suppose that there are two types of cars, good and bad. The qualities of cars are not observable but are known to the sellers. Risk-neutral buyers and sellers have their own valuation of these two types of cars as follows: Types of CarsBuyer's ValuationSeller's ValuationGood (50% probability)5,0004,500Bad (50% probability)3,0002,500Now suppose that sellers value a good car at $4,500 and a bad car at $2,500, and quality is not observed by the buyers. What is the highest price that risk-neutral buyers will offer for a used car if they recognize adverse selection?
A. $4,000 B. $3,000 C. $4,500 D. $2,500