A homeowner discovers that a large tree in his yard is diseased and may fall in a bad windstorm and if it falls, it will likely destroy the garage. The cost to have the tree cut down is significant but the homeowner has an insurance policy and figures that if the tree falls and destroys the garage, the insurance company will pay, and the deductible is less than the cost to have the tree removed. This is an example of:
A. adverse selection.
B. screening.
C. moral hazard.
D. information symmetry.
Answer: C
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Refer to Labor Demand and Labor Supply. What does area B represent?
The following questions refer to the accompanying diagram, which shows an industry's labor demand and labor supply. Labor and capital are the only factors used by the industry. The industry hires L units of labor at a wage of PL.
a. The industry's total revenue.
b. The rent earned by the industry's laborers.
c. The total wages paid to the industry's laborers.
d. The rent earned by the industry's capital.
Which system of interest rates is theoretically worst for policy coordination among the industrial countries of the world? How has this played out since the 1980s?
What will be an ideal response?
If the Fed decides to sell T-bills, it increases the supply of T-bills. How will this affect the price of T-bills and the interest rate?
a. T-bill prices fall and interest rates fall. b. T-bill prices rise and interest rates rise. c. T-bill prices rise and interest rates fall. d. T-bill prices fall and interest rates rise.
In general, we would expect the marginal cost of pollution abatement to be
A) zero. B) decreasing. C) increasing. D) constant.