Explain the principal-agent problem as it pertains to equity contracts
What will be an ideal response?
The principals are the stockholders who own most of the equity. The agents are the managers of the firm who generally own only a small portion of the firm. The problem occurs because the agents may not have as much incentive to profit maximize as the stockholders.
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A motivation of developed countries in providing development assistance is
(a) the creation of markets. (b) geopolitical influence. (c) genuine humanitarian concern. (d) all of the above. (e) none of the above.
The short run for the industry is defined as a period
a. too brief for new firms to enter the industry. b. too brief for old firms to leave the industry. c. in which the number of firms in the industry is fixed. d. All of the above are correct.
Which of the following is an implication of the law of comparative advantage?
a. Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities. b. Since workers in high-income countries utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries. c. Countries that are high cost producers of agricultural products should trade those products for goods they can produce only at a low opportunity cost. d. Countries that are low opportunity cost producers of timber products should trade those products for goods they can produce only at a high opportunity cost.
A shift from S1 to S2 reflects the change that happens when a negative externality is taken into account. A shift from D1 to D2 reflects the change that happens when a positive externality is taken into account.Refer to the above figures. If a positive externality that existed becomes corrected, price and quantity will become
A. P1 and Q1. B. P2 and Q2. C. P3 and Q3. D. P4 and Q4.