Lenders must be concerned that borrowers may do risky unauthorized things with the funds they are lent. This is the __________ problem
A) moral hazard
B) nondivisibility
C) adverse selection
D) None of the above.
A
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Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the permit policy is adopted. A firm will wish to purchase its first permit if the price of that permit is less than or equal to:
A. the average cost of eliminating one unit of pollution. B. the reduction in costs associated with increasing its emissions from zero to one unit. C. the increase in costs associated with reducing its existing emissions by one unit. D. the lowest cost of eliminating one unit of pollution.
The interest rate effect is part of the reason
A) the long-run aggregate supply curve is vertical. B) the aggregate demand curve is downward sloping. C) the short-run aggregate supply curve is upward sloping. D) the aggregate demand curve is upward sloping.
A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing
a. Adverse selection b. Moral hazard c. Forced bankruptcy d. None of the above
If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is
a. elastic b. inelastic c. unit elastic d. suggestive of an inferior good e. equal to -20