The principal-agent problem occurs:
A. when the principal has less information than the agent.
B. when the principal has more information than the agent.
C. not observed in reality.
D. when the agent has less information than the principal.
Answer: A
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We can say that a contract is able to prevent moral hazard when
A) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-averse people. B) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-loving people. C) it shifts risk to risk-loving people. D) it eliminates production inefficiencies due to moral hazard and shifts risk to risk-averse people.
In a constant-cost industry, price always equals
A) LRMC and minimum LRAC. B) LRMC and LRAC, but not necessarily minimum LRAC. C) minimum LRAC, but not LRMC. D) LRAC and minimum LRMC. E) minimum LRAC and minimum LRMC.
If a nation's interest rates are relatively high compared to those of other countries, then the exchange value of its currency will tend to
A. appreciate under a system of fixed exchange rates. B. depreciate under a system of floating exchange rates. C. depreciate under a system of fixed exchange rates. D. appreciate under a system of floating exchange rates.
The graph illustrates the supply of sweaters. As the technology used to produce sweaters improves, the
A) supply of sweaters decreases and the demand for sweaters does not change. B) supply of sweaters increases and the demand for sweaters does not change. C) quantity of sweaters supplied increases. D) quantity of sweaters supplied decreases. E) supply of sweaters increases and the demand for sweaters increases.