The pattern in which insurance is purchased more frequently by those who are the most costly for companies to insure is referred to as:
A. risk aversion.
B. statistical discrimination.
C. moral hazard.
D. adverse selection.
Answer: D
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Refer to Pollutants. Suppose transactions costs preclude the possibility of private bargaining between the chemical plant and the farm. Which liability rule will not result in an efficient outcome?
A chemical plant's production adds pollutants to a stream which irrigates a farm's crops. The pollutants damage the farm's crops, increasing the firm's costs by $800 per month. The crop damage may be eliminated in two ways: the chemical plant can install a new filtering system costing $300 per month, or the farm can install a new irrigation system costing $600 per month. a. The chemical plant bears all liability for the crop damage. b. The farm bears all of the costs of the crop damage. c. The chemical plant bears 50% of the liability, while the farm bears the other 50% of the crop damages. d. The Coase Theorem guarantees that any assignment of liability will result in an efficient outcome.
What does a production point beyond the production possibilities frontier represent?
What will be an ideal response?
The supply of sand is perfectly inelastic and the demand curve for sand is downward sloping. Hence, if a tax on sand is imposed,
A) sand buyers pay the entire tax. B) sand sellers pay the entire tax. C) the tax is split evenly between the buyers and sellers. D) the government pays the entire tax. E) the government collects no tax revenue because the supply is perfectly inelastic.
Based on the figure below. Starting from long-run equilibrium at point C, a decrease in government spending that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at__ creating _____gap.
A. B; no output B. D; an expansionary C. B; recessionary D. D; a recessionary