What is mechanism design? Give at least two examples
What will be an ideal response?
It is a branch of economic theory that studies how contracts or institutions can be designed in such a way as to align the objectives of two parties in a transaction. A piece- rate compensation method, for example, createsincentives for a worker to work hard, just as his or her superior wants. A co-payment in the health care industry encouragesmore careful use of health care, just as the insurance company wants.
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If the government begins to run a larger budget deficits, then assuming there is no Ricardo-Barro effect, the demand for loanable funds ________ and the real interest rate ________
A) decreases; falls B) decreases; rises C) increases; rises D) increases; falls
Refer to the production possibilities frontier figure above. Which of the following movements requires the largest opportunity cost, in terms of good X forgone, per extra unit of good Y?
A) from point e to point d B) from point d to point c C) from point c to point b D) from point b to point a