Answer the following statement(s) true (T) or false (F)
1. In the principal-agent problem, assigning full liability to the agent gives no incentive for the principal to avoid damages.
2. Transaction costs arise when property rights are nonexistent.
3. If all parties can enter into negotiations, social optimum is achieved with or without a Pigou tax.
4. A free-rider problem occurs when people can share in the benefits of an activity without being forced to contribute to its costs.
5. Court decision involving torts are irrelevant to social welfare.
1. False
2. True
3. True
4. True
5. False
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When the price of wood (which is an input in the production of furniture) falls, the consumer surplus associated with the consumption of furniture
A) increases. B) decreases. C) does not change. D) could be any of the above.
The marginal revenue curve for a monopolist is
a. always above the demand curve. b. generally below the average cost curve. c. always above the average revenue curve. d. always below the demand curve.
A nation's trade deficit will tend to shrink when its
a. economy is expanding. b. economy is shrinking. c. investment environment is attractive to foreigners. d. economy is growing at a normal rate.
One can tell that Figure 5.1 shows short run costs because:
A. the slope of total costs and variable costs are the same. B. costs are rising. C. total costs are positive when output is zero implying fixed costs. D. All of these.