Answer the following statements true (T) or false (F)
1. Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer information about sellers.
2. A moral hazard problem occurs before a transaction - when people alter their behavior before they sign a contract, imposing costs on the other party.
3. Adverse selection is when someone with home insurance decides to take the chance that a dying tree would fall on the garage, rather than spend the money to have the tree cut down.
4. When the government bails out large banks when the banks become unstable, it could lead to a moral hazard problem.
1. TRUE
2. FALSE
3. FALSE
4. TRUE
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Marginal rates of technical substitution (MRTS) represent
A) the optimum combinations of inputs. B) cost-minimizing combinations of inputs. C) the degree to which one input can replace another without output changing. D) All of the above
Which of the following is NOT a necessary condition for a firm to price discriminate?
A) The firm must be able to separate markets. B) Buyers in different markets must have different elasticities of demand. C) Resale of the product must be preventable. D) The firm must be a price-taker.