In graphical form, the presence of an external benefit that is ignored by consumers can be shown as
A) a market demand curve to the left of the market demand curve for which the consumers take the external benefit into account.
B) a market demand curve to the right of the market demand curve for which the consumers take the external benefit into account.
C) a market demand curve the same as the market demand curve for which the consumers take the external benefit into account.
D) the absence of a market demand curve.
Answer: A
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A coupon bond has an annual coupon of $75, a par value of $1000, and a market price of $900. Its current yield equals
A) 7.50%. B) 8.33%. C) its yield to maturity. D) Not enough information has been provided to calculate the current yield for this bond.
Moral hazard occurs when contracts are written in such a way that
A) the interests of agent and principal converge. B) the interests of agent and principal diverge. C) agents will wish to maximize the principal's utility. D) production and risk-bearing efficiency are achieved.