Scope of Services An apartment owner has contracted for lawn mowing services for a number of apartment complexes he owns. He negotiated a price per month but the scope of services to be performed remained a bit vague. Why is he disappointed that the winning contractor provides less than the desired level of services?
This is a moral hazard issue. Once the contract has been signed, the contractor has an incentive to exert as little effort as possible. So, for example, the lawn care service may not edge as often along a path that not much seen or that grows more slowly.
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Consumers are generally willing to spend more time researching cars before making a purchase than they do researching paper towels because: a. the cost of gathering information about paper towels is very small
b. the cost of gathering information about cars is less than the cost of gathering information about paper towels. c. the cost of gathering information about cars is less than the cost of gathering information about paper towels. d. the net benefit from gathering additional information about paper towels is likely much greater than the net benefit derived from gathering additional information about cars.
What economic concept is exemplified by an employer offering tuition reimbursement to employees who are continuing their education?
a. marginal benefit b. marginal cost c. positive incentive d. negative incentive