Explain what the principal-agent problem is, and explain evidence of its existence in hospitals in the United States
What will be an ideal response?
The principal-agent problem is an example of asymmetric information in the market place. This problem occurs when one person's welfare (the principal) depends upon what another person does (the agent).
The study of 725 hospitals from 14 major hospital chains by Herzlinger and Krosker found that the rate of return on investment and the average costs of two types of hospitals did differ. They found that for-profit hospitals earned an 11.6 percent return on investment, and nonprofit hospitals earned 8.8 percent return on investment in 1977. After differences in hospital functions were netted out, using regression analysis, the authors found that the average cost of a patient day in nonprofit hospitals was 8 percent higher than in for-profit hospitals.
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Suppose an individual's MRS (of steak for beer) is 2:1 . That is, at the current consumption choices he or she is willing to give up 2 beers to get an extra steak. Suppose also that the price of a steak is $1 and a beer is 25¢. Then in order to increase utility the individual should
a. buy more steak and less beer. b. buy more beer and less steak. c. continue with current consumption plans. d. Not enough information to answer the question.
What is an example of lower production costs brought about by the use of technology?
What will be an ideal response?
One major point that Keynes raised pertains to income and spending. He argued that:
A. All income is often spent in the same period of time B. Oftentimes, people spend more than their incomes C. The marginal propensity to spend out of additional income is quite volatile D. Pessimism could cause aggregate spending to fall short of total output
If the dollar appreciates, how will aggregate demand in the United States be affected?
A) Aggregate demand will shift to the right as exports increase. B) Aggregate demand will shift to the right as imports increase. C) Aggregate demand will shift to the left as exports increase. D) Aggregate demand will shift to the left as imports increase.