Explain the concept of moral hazard. Give an example
What will be an ideal response?
Moral hazard exists when one of the parties to an agreement has an incentive after the agreement made to act in a manner that brings additional benefits to himself or herself at the expense of the other party. Moral hazard arises because it is too costly for the injured party to monitor the actions of the advantaged party. For example, Bob hires Jack as a salesperson and pays him a fixed wage. Jack has an incentive to put the least possible effort, benefiting himself and lowering Bob's profits.
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The euro is a composite currency; its value is an average of the changing values of several national currencies
a. True b. False Indicate whether the statement is true or false
A busy country store is the only producer and distributor of maple sausages in New Hampshire. It calculates that if it sets MR = MC, it will sell 2,000 sausages at a price of $10 and make a total economic profit of $6,000 . Instead, the store decides to charge a price of $8 . We can infer that the store
a. is lowering the price so that it can earn more than $6,000 total profit b. is operating in a contestable market so it is pricing the sausages to keep out competition c. will now sell fewer sausages according to the law of demand d. is now operating at a loss of $1 per sausage e. hopes that its demand is inelastic so that total revenue will increase
If the Fed wanted to keep inflation in check given the growth rate of the economy, how should they have responded to the financial innovations of the mid to late 1970s and early 1980s in terms of money growth?
What will be an ideal response?
The type of nonprice rationing that most closely approaches the market outcome is
A. coupon rationing with coupons that cannot be resold. B. favored customer rationing. C. coupon rationing with coupons that can be resold. D. first-come, first-served basis or queuing.