The XYZ Co is hiring salespersons. They will be paid a very attractive hourly rate that is independent of how much they sell. Describe an adverse selection that would take place. Describe a moral hazard that would take place
What will be an ideal response?
The adverse selection occurs when only below-average salespeople apply for the job. Above-average salespeople know they are good and would prefer a commission so that their income increases with their performance. Below-average salespeople do not like to work on commission because it lowers their income. The moral hazard occurs when the salespeople, once hired, are less productive than they would be if they were paid a commission instead of an hourly wage.
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Banks' asset portfolios include state and local government securities because
A) they help to attract business from these government entities. B) banks consider them helpful in attracting accounts of Federal employees. C) the Federal Reserve requires member banks to buy securities from state and local governments located within their respective Federal Reserve districts. D) there is no default-risk with state and local government securities.
If there is an increase in demand for a good,
a. there will be an increase in demand for the inputs that produce it. b. there will be a decrease in demand for the inputs that produce it. c. there will be an increase in supply of the inputs that produce it. d. there will be a decrease in supply of the inputs that produce it.