In the law of torts, what is meant by a negligence standard? How does a negligence standard promote economic efficiency? How can it lead to less-than-efficient outcomes?
What will be an ideal response?
Under a negligence standard, a defendant will be held liable for the damages resulting from an accident if his cost of taking precautions to prevent the accident is less than the damages times the probability of the accident's occurrence. This standard promotes economic efficiency because it encourages low-cost precautions while discouraging precautions whose cost exceeds their value. One problem with the negligence standard is that the plaintiff may have access to the least-cost method of avoiding the accident, but the negligence standard gives him no incentive to do so. A second problem with the negligence standard is that it gives no incentive to the defendant to totally abandon the behavior that causes the accident, even though this may be the least-cost method of preventing the accident.
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Assume the central bank decides to lower the bank's reserve requirements. Where and how should you begin your analysis when analyzing the chain reaction of economic interactions?
a. Start the analysis in the real credit market with supply of real credit shifting to the right. b. Start the analysis in the real goods market with aggregate demand shifting to the left. c. Start the analysis in the real credit market with demand for real credit shifting to the left. d. Start the analysis in the real credit market with demand for real credit shifting to the right. e. Start the analysis in the real credit market with supply of real credit shifting to the left.
How well fiscal policy works depends on how much the velocity of money can be changed by government tax and spending decisions.
Answer the following statement true (T) or false (F)