Neoclassical economics tend to make inaccurate predictions of human behavior in situations involving:

You have a bond that pays $125 per year in coupon payments. Which of the following would result in an increase in the price of your bond?

A) The likelihood that the firm issuing your bond will default on debt increases. B) Coupon payments on newly-issued bonds rise to $140 per year. C) The price of a share of stock in the company falls. D) Coupon payments on newly-issued bonds fall to $75 per year.

The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons leads to a destruction of the grazing resource. To correct for this problem, the town could

a. allow individual shepherds to choose their own flock sizes. b. internalize the externality by subsidizing the production of sheep's wool. c. auction off a limited number of sheep-grazing permits. d. wait until the market corrects the problem.