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Consider each of the following situations involving moral hazard. In each case identify the principal (uninformed party) and the agent (informed party) and explain why there is asymmetric information. How does the action described for each situation mitigate the moral hazard problem?
a. Car insurance companies offer discounts to customers who install anti-theft and speed-monitoring devices in their cars.
b. The International Monetary Fund conditions lending to developing countries upon the adoption of a structural adjustment plan.
c. Firms compensate top executives with options to buy company stock at a given price in the future.
d. Landlords require tenants to pay security deposits.
A local video store estimates that their average customer's demand per year is P = 3.5 - 0.5Q (all customers are identical), and knows that the marginal cost of each rental is $0.5. How much should the store charge for an annual membership
A table saw costs $175 at a local store. You may either pay cash for it or pay $35 now and $12.64 a month for 12 months beginning 30 days hence. If you choose the time payment plan, what nominal annual interest rate will you be charged
Discuss the potential role of each of the factors
In the model of monopolistic competition, we say that there is product differentiation. What does this mean, and how does it differ from the assumption of homogeneous goods in perfect competition?
Now consider population growth at the exponential rate n, and show that this model generates sustained equilibrium growth, as in the model analyzed in Section 13.3.
Which of the pairs of goods above is likely to be nearly perfect substitutes and which likely to be nearly perfect complements? Explain.
A major car manufacturer wants to test a new engine to determine whether it meets new air pollution standards. The mean emission of all engine of this type must be less than 20 parts per million of carbon. Ten engines are manufactured for testing ..
If the applicants cannot collude, how much will each spend on lobbying? (Hint: The winner will set the monopoly price for the service.)
In what year will the central bank be forced to abandon its exchange rate peg and why? f. What if the future deficits are anticipated? How does your answer to part (e) change? Explain briefly.
suppose that x and y are random variables such that ex 4 ey 2 and varx vary 4. let zxy. 1. find ez 1 dp 2. assuming
Analysts at the Fleetfeet Corporation estimate a demand function for its athletic shoe line to be: Qf = 5 - 2.4*Pf + 0.7*A + 0.002*I + 0.8*Ps Where Qf = the quantity of shoes sold, Pf = the own price of shoes produced by Fleetfeet ($/pair)
With $300 million in state aid to attract 1,500 new jobs, the initial marginal social cost to Alabama taxpayers of attracting the Mercedes plant was $200,000 per job. Estimate the minimum marginal social benefit required to make
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