To reduce the principal-agent problem
A) boards-of-directors can tie the salaries of top management to the profitability of the firm.
B) managers can inflate profits on financial statements.
C) managers can take on more risk than they disclose to investors.
D) managers can hide liabilities by not disclosing them on financial statements.
A
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The two sectors of the economy in the simple circular flow model are
A) the employed and the unemployed. B) households and businesses. C) foreign markets and domestic markets. D) the private sector and the public sector.
Because smoking causes illness and disability to smokers, society must maintain more health-service capacity than it would need in the absence of smoking. Since the cost of maintaining this capacity is covered to a substantial degree by health insurance, even nonsmokers must pay higher premiums. Also, smokers hurt nonsmokers as a result of "passive smoke." The Rand Corporation estimates these
costs to be 29 cents per pack of cigarettes. Cigarette taxes average 37 cents per pack. Based on the economist's definition of efficiency, it follows that a. cigarette taxes are too high, and cigarette production is lower than the efficient amount. b. cigarette taxes should be increased until external costs are zero. c. since the tax exceeds the marginal cost, we have a better than efficient outcome. d. we are overconsuming cigarettes.