Return to the situation with the executive from the previous question. Now assume that shareholders cannot observe effort, so cannot specify how hard the executive works in the contract but must induce it through the incentive scheme. Which of the following wage contracts would work out best for shareholders in equilibrium?
a. A flat wage w = 2,500 with no profit share.
b. A share of 35% of the gross profits.
c. A share of 55% of the gross profits.
d. A share of 70% of the gross profits.
c
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Suppose the Fed purchases $100 million of U.S. securities from security dealers. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a:
a. $100 million decrease in the money supply. b. $100 million increase in the money supply. c. $200 million increase in the money supply. d. $500 million increase in the money supply.
Which of the following products should be sold face-to-face rather than by mass advertising?
a. Breakfast cereals b. Health drinks c. A pharmaceutical which can only be understood by doctors d. A new brand of herbal cosmetics
Briefly explain and provide an example of how marginal willingness to pay relates to consumer surplus
What will be an ideal response?
Which of the following is a determinant of the price elasticity of demand for a product? I. The existence of substitute goods II. The percentage of a consumer's total budget devoted to purchases of that commodity
A) I only B) II only C) both I and II D) neither I nor II