Upon learning that his auto transmission is about to fail, Ray Roma sells his car to an unsuspecting buyer. This circumstance illustrates the:
A. adverse selection problem.
B. free-rider problem.
C. moral hazard problem.
D. principal-agent problem.
Answer: A
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In the figure above, the tax wedge is equal ________ per hour, the after-tax real wage rate is equal to ________, and the before-tax real wage rate is equal to ________
A) $20; $30; $35 B) $15; $20; $35 C) $20; $30; $20 D) $10; $30; $30 E) $30; $20; $35
Suppose that you have wheat in storage and that the price of wheat is currently $7.00 per bushel. You can sell your wheat immediately but you also have an opportunity to sell in six months. At that time, you believe the price of wheat will be $8.00 per bushel. Your cost of storage is $0.75 per bushel for six months. One dollar in six months is worth one dollar today (no time preference). What strategy is profit maximizing?
A. Hold onto your wheat and sell in six months. B. Sell your wheat today. C. Minimize your losses by exiting the wheat market. D. Expand production to sell more wheat.