In the law of torts, what is meant by a negligence standard? How does a negligence standard promote economic efficiency? How can it lead to less-than-efficient outcomes?
What will be an ideal response?
Under a negligence standard, a defendant will be held liable for the damages resulting from an accident if his cost of taking precautions to prevent the accident is less than the damages times the probability of the accident's occurrence. This standard promotes economic efficiency because it encourages low-cost precautions while discouraging precautions whose cost exceeds their value. One problem with the negligence standard is that the plaintiff may have access to the least-cost method of avoiding the accident, but the negligence standard gives him no incentive to do so. A second problem with the negligence standard is that it gives no incentive to the defendant to totally abandon the behavior that causes the accident, even though this may be the least-cost method of preventing the accident.
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When will the substitution effect of a wage increase cause a fall in the amount of labor employed?
a. Always. b. When labor is not a regressive factor. c. When labor and capital are substitutes in production. d. When labor and capital are complements in production.
The income elasticity of demand for used cars is less than zero, so used cars are
A) an inferior good. B) a normal good. C) an inelastic good. D) a perfectly inelastic good. E) a substitute good.
The rate of return is equal to the
A) sum of the coupon rate and the current yield. B) yield to maturity. C) sum of the current yield and the actual rate of capital gain or loss. D) sum of the current yield and the expected rate of capital gain.
Market interest rates are determined by
a. banks b. Wall Street c. the demand for loanable funds d. the supply of loanable funds e. the demand for and supply of loanable funds