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Analyze the situations involving risk below to determine if they involve Moral Hazard (M), Adverse Selection (A), or the Principal-Agent Problem (P). For Moral Hazard write “M” in the blank. For Adverse Selection write “A” in the blank. For the Principal-Agent Problem write “P” in the blank. (1 pt. EACH; 5 pts. TOTAL)
a. Only the owners of sick pets purchase pet health insurance.
b. A mechanic tells you that you need new brakes, but you refuse to buy new brakes because you’re afraid she might be trying to rip you off.
c. In the season after signing a big contract, an athlete no longer gives his/her full effort, leading to a productivity drop from the previous year.
d. Bureaucrats have more information than politicians and may use that information to further their own interests.
e. Seeing that his passenger is a tourist, a taxicab driver takes a longer route to the destination in order to collect a higher fare.
Which of the following would cause the supply curve to shift to the right in the market for gasoline?
What is your opinion of this economics course? Did it meet your expectations? What suggestions can you offer for improvement of this course for future students? Is there a downside to the global economy evolving to be based completely and wholly on t..
A large electric utility company releases 62 million tons of greenhouse gases in to the environment each year. A company has committed to spending $1.2 billion in capital over the next 5 years to reduce its annual emissions by 5%. More will be spent ..
Which of the following is NOT true about a differentiated-product Bertrand duopoly?
Suppose a consumer's level of satisfaction is given by AB2 and he/she has a total of $10 to spend on goods A and B. If the price of A is $1 and the price of B is $2, and assuming you can only purchase whole units (not fractional) of A and B, how many..
Discuss the two major economic worries faced by American politicians, unemployment and inflation, and the options available to address them.
Pretend that you have just been surprised with a genuine e-mail that says you have just been selected by your favourite pizza delivery company that every day for the next month you will receive your favourite pizza for lunch and another of that same ..
Suppose that the CIP holds. Suppose that dollar and euro 1-month interest rates are equal at 5%. The current spot rate in 1$/euro. What is the one month forward exchange rate?
The average rent in a city is $1,500 per month with a standard deviation of $250. Assume rent follows the normal distribution. What percentage of rents are between $1,250 and $1,750? What percentage of rents are greater than $2,000?
Now let’s consider the compensation strategy. What does “b” equal for the Milford sales force? If you were to redesign the compensation strategy to use optimal incentives, what would you do?
q. use the subsequent demand schedule to determine total also marginal revenues for each possible level of
Florida Citrus Inc. (FCI) produces and sells a highly popular sports drink in the North American market. For many years, it has sold in the Asian market through a Tokyo-based importer. The contract with the importer is up for renewal, and FCI decides..
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