Answer to the best of your ability #31) If the interest rate is 5%, the value to
ID: 1125277 • Letter: A
Question
Answer to the best of your ability
#31) If the interest rate is 5%, the value today of a promissory note to pay a dollar a year from now is
a) $1.05
b) 5 cents
c) No less than $1/1.05
d) No more than $1/1.05
e) Depends on the rate of inflation
#32) The success of the “Coase Theorem” relies on the fact that
a) Transaction costs are low
b) Property rights are clearly assigned and enforceable
c) Information is symmetric
d) Negotiation can be conducted in a “frictionless” fashion
e) All of the above
#33) Under traditional common law, the damages awarded to his family for the accidental death of the family breadwinner used to be
a) The expected present value of his future earnings
b) The expected present value of his future earnings plus social security pension
c) Derived from the compensating differentials in pay for high-risk jobs
d) Restitution from the party found responsible for the accidental death
e) Zero
#34) You can tell a person is risk averse if
He/She buys insurance
He/She sells insurance
He/She doesn’t like skydiving
He/She doesn’t like money after becoming really rich
He/She likes skydiving
#35) One problem with allowing people to keep their health records confidential from insurance companies is
Moral Hazard
Adverse Selection
Risk Aversion
Risk Pooling
Risk Sharing
#36) Post hoc ergo propter hoc (after this, therefore because of this)
a) Is a legal rule related to determining who is responsible for an accident
b) Is a form of logical fallacy
c) Is a principle of classical physics
d) All of the above.
e) None of the above
#37) The “real” problem that causes adverse selection is
Market power
Asymmetric information
Public Goods
Externalities
None of the above
#38) In the context of product liability, the principle of the least cost avoider
a) Explains product warrantees
b) Implies that the producer should bear all the costs associated with accidents related to its products' use
c) Implies that the producer should bear none of the costs associated with accidents related to its products' use
d) Implies that the producer should bear all the costs associated with accidents related to its products' use if it is found to have been negligent in the products' manufacture
e) None of the above
#39) The “real” problem with public goods is
The holdout problem
Asymmetric information
Externalities
Free riders
None of the above
#40) A contract of adhesion
a) Is unenforceable because it deals with servitude
b) May not be enforceable because it contains a penalty clause
c) Is a form contract
d) Is a contract signed under duress
e) May not be enforceable since it requires specific performance
#41) A monopolist's supply curve
a) Is its marginal cost curve
b) Is its average cost curve
c) Is its marginal revenue curve
d) May be downward sloping
e) Is not well defined
#42) While both deal with net benefits to society, the difference between equity and efficiency is that
a) Equity is concerned with maximizing the sum of these benefits while efficiency is concerned with these benefits being distributed fairly
b) Efficiency is concerned with minimizing the sum of these benefits while equity is concerned with the fair distribution of these benefits
c) Efficiency is concerned with maximizing the sum of these benefits while equity is concerned with the fair distribution of these benefits
d) Efficiency and equity are equivalent with respect to the implementation of justice
e) None of the above
Questions 43-46 are related to the following situation: Consider the situation where a railroad runs through 100 farms and each farm is equally susceptible to a fire caused by the railroad throwing sparks. The railroad can put on a spark arrester to prevent sparks. The farmers can grow either wheat, which is flammable, or clover, which is not, but is (in the absence of fire) less profitable than wheat.
#43) If the damages from the fires are less costly than switching to clover or putting on a spark arrester, then assigning property rights to the railroad may
Lead to the efficient outcome – no transactions needed
Lead to a public goods provision problem
Lead to a holdout problem
Outcome depends on how the courts award damages
None of the above
#44) If the damages from the fires are less costly than switching to clover or putting on a spark arrester, then assigning property rights to the farmers may
Lead to the efficient outcome – no transactions needed
Lead to a public goods provision problem
Lead to a holdout problem
Outcome depends on how the courts award damages
None of the above
#45) If putting on a spark arrester is cheaper than both switching to clover and absorbing damages, then assigning property rights to the railroad may
Lead to the efficient outcome – no transactions needed
Lead to a public goods provision problem
Lead to a holdout problem
Outcome depends on how the courts award damages
None of the above
#46) If switching to clover is cheaper than damages due to fire and the cost of the spark arrester, then assigning liability rights to the farmers may
Lead to the efficient outcome – no transactions needed
Lead to a public goods provision problem
Lead to a holdout problem
Outcome depends on how the courts award damages
None of the above
#47) The essential difference between civil and criminal law is that
a) Non-violent wrongful acts are dealt with in civil law, whereas violent wrongful acts are dealt with in criminal law
b) Civil law entails the application of liability rules, whereas criminal law entails the application of property rules
c) Under civil law the prosecutor is a private party, whereas under civil law the prosecutor is the state
d) Civil law deals with unintentional wrongful acts, criminal law with intentional wrongful acts
e) Under civil law the punishment equals the damage done, whereas under criminal law the punishment is "sufficient to deter"
#48) A tort is
a) A breach of contract
b) A violation of a property right
c) A nuisance
d) A crime
e) A civil wrong
#49) The Hand formula
a) Under tort law, provides a guideline for the total amount of damages awarded
b) Under tort law, provides a guideline for the amount of damages awarded for bodily injury
c) Provides a criterion for negligence
d) Provides a guideline as to whether or not a contract is in restraint of trade
e) Relates the length of the prison term to the amount of the fine when the defendant cannot pay the fine
#50) Which of the following is a problem with taking an economic approach to analyzing law?
a) In many situations efficiency and justice may have little to do with one another
b) Humans like to look for patterns in things where such patterns may not be intentionally contrived
c) Legal rules may not be the product of deliberate design
d) Legal rules may be the end result of many individual political actions
e) All of the above
Explanation / Answer
32. E. Coase thorem internalises externality through property rights
34. C. Doesn't like skydiving. A person who does not like to take risk wilk not skydive
39. D. Free riders . Public goods are provided free of cost.
41. E. Monopolist does not have well defined supply curve. monopolist is the single seller and can sell the good at any price.
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