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Which of the following examples is an adverse-selection problem and which is a moral hazard incentive problem? Explain why. In each case, give one method that the firm might use to reduce the problem.
a. A Grand Forks restaurant wants to buy a used car for deliveries, but is afraid of buying a lemon.
b. A bar decides to offer an all-you-can-drink promotion that is sold for a fixed price. The bar discovers that the customers for this promotion are not its usual clientele. Instead, the customers tend be politicians who consume an amazing amount of liquor. The bar loses money on the promotion.
c. A car wash owner hires a manager who promises to work long hours. When the owner is out of town, the manager goes home early. This action results in lost profits for the firm.
d. The CEO of Best Buy takes actions that reduce the value of Best Buy stock but increase his utility.
e. Jenna buys a used Playstation3 from a classmate. She soon discovers it doesn't play movie or game disks and stops playing games after 15 to 20 minutes.
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Name four reasons why the desired investment function would change the way it did.
What is the principal-agent problem? When will the principal-agent problem be most severe? Why might there be a principal-agent problem between the stockholder-owners and the managers of a large corporation?
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Immigration is a fact of life in the United States. This will lead to a big boost in the labor supply. What field would you rather be in: A field where the demand for your kind of labor is elastic or a field where the demand for your kind of labor..
Government decreases current tax, while holding government spending in the present and future constant. (a) How does this effect aggregate output, employment and the real wage What is the multiplier and how does it differ from the government expen..
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A price consumption curve and a demand curve an individual demand curve and a market demand curve
Do the following exercise with the help of the data provided in the tables below. You will use Excel to create your graphs. In an MS Word file of no more than 1-2 pages, write up responses to the points 2 and 3 below. Table 1: Demand of Bonds Point P..
In economics, what factors may help determine the value of information Can you provide factors in the case when information is treated as a consumption good Can you provide factors in the case when information is treated as an input in the decisio..
Write down a short memo to Ralph Sampson describing the analysis that the company should do before it makes this decision and any other considerations that would affect decision.
Some economists studying the effects of the minimum wage law have found that it tends to reduce the employment of black teenagers relative to white teenagers. Briefly explain the economics behind this finding.
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