1. Social norms often evolve to cope with external costs, without bargaining or
ID: 2429433 • Letter: 1
Question
1. Social norms often evolve to cope with external costs, without bargaining or law making. This is bad for society because it inevitably creates market inefficiences.
TRUE
FALSE
2.Assume the probability of a settlement out of court = .9. If the expected cost of trial information is 8 times that of the expected cost of discovery information, would you expect the case to settle or go to trial? Why?
Go to trial, because the expected cost of trial information is less than 9 times that of the expected cost of discovery information.
Settle, because the expected cost of trial information is less than 9 times that of the expected cost of discovery information.
Settle, because there's a 90% chance it will settle and information costs have no impact.
None of these.
3.The source of greatest inefficiency with private property is free riders.
true
false
4.Which of the following best describes the incentive of a judge with respect to the time allocated to a trial?
Because judges are on a fixed salary there is some economic incentive to encourage quick trials, but this focus on purely economic incentives overlooks other incentives a judge may face like the desire for justice.
Because judges are paid by the hour, they prefer long cases.
Because judges are perfectly impartial about everything, including how they spend their time, they are not incentivized one way or another with respect to the amount of time spent at trial.
Because judges are on a fixed salary, they want to get through cases quickly.
5. Which of the following is a way to address external costs?
a.
bargaining
b.
social norms
c.
all of these
d.
law
Explanation / Answer
1) Solution: False
Explanation: The anti-bargaining is not bad for the society
2) Solution: Go to trial, because the expected cost of trial information is less than 9 times that of the expected cost of discovery information.
Explanation: Since the expected cost of the discovery information exceeds the expected cost of the trial information, go to trial.
3) Solution: False
In private property free-rider issues results in too little of the good being produced
4) Because judges are on a fixed salary there is some economic incentive to encourage quick trials, but this focus on purely economic incentives overlooks other incentives a judge may face like the desire for justice.
Explanation: There is only a little incentive when judges are on a fixed salary for the encouragement on quick trials
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