What is “market signaling”? What will be an ideal response? ANSWER A way of signaling information to other parties in situations where asymmetric information exists so that their ability to make correct decisions is improved.
Which of the following holds true? A) When the Marginal Product (MP) is rising, Marginal cost (MC) is rising; and when MP is falling, MC is falling. B) When MP is rising, MC is falling, and when MP is falling, MC is rising. C) When MP is rising, MC is constant, and when MP is […]
Relative to a competitive labor market, monopsony A) is also efficient. B) creates a deadweight loss because it pays an excessive wage. C) creates a deadweight loss because the wage is below the marginal revenue product of labor. D) creates a deadweight loss because the wage is above the marginal revenue product of labor. […]
The exclusive privilege to use an asset is called a(n) A) property right. B) exclusive use agreement. C) property privilege. D) right to work privilege. ANSWER A
What is “moral hazard”? What will be an ideal response? ANSWER The risk involved to one party when another party’s behavior changes in a detrimental manner after a contract has been entered into. Usually, this is the result of asymmetric information.
The result that, under certain circumstances, no government action is needed to control an externality because it can be eliminated by bargaining between the affected parties is called A) a Nash equilibrium. B) Coase Theorem. C) Bargaining Theorem. D) English Bargaining. ANSWER B
What is “asymmetric information”? What will be an ideal response? ANSWER A market situation in which one party in a transaction possesses more complete information than another party.
The marginal product of the variable input A) is always positive. B) typically falls then rises. C) is equal to the total product divided by the total amount of the variable input employed. D) None of the above ANSWER D
The U.S. can produce pizza for $7.50 each and barrels of beer for $37.50 each, and Germany can produce pizza for ¬5 each and barrels of beer for ¬15 each (¬ is the symbol for the euro, the currency Germany uses). If the exchange rate is 1. 50 $/¬ then A) the U.S. has a […]
The above figure shows the cost curves for a competitive firm. The firm will incur economic losses if the price is less than A) $0. B) $5. C) $10. D) $11. ANSWER C