Which of the following is an example of the monitoring problem?
A. Government fails to stop firms hiring child labor to produce goods.
B. The managers of a firm maximize their own salaries to the detriment of maximizing profit for the owner of the firm.
C. A firm does not take into account the air pollution caused by a coal factory when pricing its product.
D. Two firms collude to set the market price, but the government cannot prove this conclusively.
Answer: B
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In a competitive market for a private good with no price or quantity regulations, no external cost nor external benefit, low transactions costs, and no taxes or subsidies,
A) the allocation of resources is planned by the government. B) production is organized by government organizations. C) efficiency can be attained in the market with no government intervention. D) efficiency is usually be achieved by majority rule. E) efficiency is generally obtained by using a command system.
The key to reaching a Pareto optimum through mutually beneficial exchange _____
a. is to remove barriers to international trade b. is to establish property rights for valuable resources c. is to provide start-up capital to fledgling entrepreneurs d. is to encourage people to use online auction services
Division of labor allows people to do tasks for which they have greater natural ability
a. True b. False
Assume you borrow $1,000 on credit cards at an annual interest rate of 10 percent. If the inflation rate is 12 percent during the year and the debt has to be paid back in 12 months, then:
a. income will be redistributed from you to the bank. b. the real return for the bank will be greater than initially expected. c. you will repay the bank with fewer dollars than you borrowed. d. the dollars repaid will have less purchasing power than those borrowed. e. the bank will obtain the same return on the loan as initially expected.