Moral hazard occurs when one party to a contract changes his behavior in response to that contract and thus passes on costs of that behavior to the other party.
Answer the following statement true (T) or false (F)
True
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Figure 4.3 illustrates the demand for tacos. An increase in price of tacos would bring about a movement from
A) point a to point c. B) point c to point a. C) D2 to D0. D) D0 to D1.
A $10 per-unit tax on cell phones raises the equilibrium price paid by consumers by $5. Before the tax, 5,000 cell phones were sold per year. The revenue from the tax is
A) zero. B) positive but less than $50,000 per year. C) $50,000 per year. D) more than $50,000 per year.
If consumers buy only gasoline and food, at their best affordable choice the marginal rate of substitution between food and gasoline ________ the relative price of food and gasoline
A) must exceed B) must be less than the C) must equal D) might exceed or be less than but not equal to
The recurrent ups and downs in the level of economic activity extending over several years are a description of a:
A. recession. B. business cycle. C. business trough. D. noncyclical fluctuation.