If Good X has social demand that is less than market demand, then Good X must be a
A. Good suffering from the free-rider problem.
B. Good with an external benefit.
C. Good with an external cost.
D. Public good.
Answer: C
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Suppose a person with automobile collision insurance is more likely to try to drive on an icy road in the middle of winter than that person would be if he or she didn't have automobile collision. This is an example of
A. adverse selection. B. moral hazard. C. the free-rider effect. D. asymmetric information before exchange. E. none of the above
The principal-agent problem arises because of
a. natural selection b. diminishing marginal returns c. hidden actions d. the winner's curse e. hidden characteristics
Product differentiation makes the demand for a monopolistically competitive firm's product:
a. perfectly elastic. b. more elastic than for a monopoly. c. more inelastic than for a monopoly. d. perfectly inelastic.
Which of the following observations concerning price discrimination is true?
A. It only occurs in monopolies. B. It is easier for a monopolist than for a firm that is affected by competition. C. It means that sales to all customers are equally profitable. D. It is considered as a bad business practice under all circumstance.