The expected damage to innocent third parties per unit of the good produced is shown as the "external cost" in Figure 27.1. An unregulated competitive market for the product produces a quantity of Q* units, which sell for a price of P* per unit. If the expected cost to producers of this product due to unreasonable jury awards in frivolous lawsuits were greater than the external cost per unit produced, the quantity of the good produced by this competitive industry would be 
A. less than the socially optimal quantity.
B. greater than the socially optimal quantity but less than Q* units.
C. equal to the socially optimal quantity.
D. greater than Q* units.
Answer: A
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A) the central bank will suspend operations until the failed firm is restructured B) it is unclear whether the firm's collapse will remain an isolated event C) customers of the failed company will organize a boycott to protest their losses D) employees and owners of the failed company reduce their spending, with adverse effects on other businesses
Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%. The price elasticity of demand for this good is equal to 2.0
a. True b. False Indicate whether the statement is true or false
Blake decreases his consumption of grapes after his income goes up. For Blake
A. grapes and income are complementary goods. B. grapes are an inferior good. C. grapes and income are substitute goods. D. grapes are a superior good.
Total agency costs are
A. the monitoring costs plus out-of-pocket costs. B. out-of-pocket costs plus residual loss. C. out-of-pocket costs minus residual loss. D. the monitoring costs plus residual loss.