The market for control of corporations serves to
A) create moral hazard.
B) address the principal-agent problem.
C) add to economies of scale.
D) address the problem of adverse selection.
QUESTION 2A Prisoners' Dilemma game demonstrates how ____ is often rational for individuals even though ____.
a. the failure to cooperate; cooperation would make everyone worse off
b. the failure to cooperate; cooperation would make everyone better off
c. cooperative behavior; cooperative behavior might make everyone worse off
d. All of the above can be demonstrated with a Prisoners' Dilemma game.
QUESTION 3When does the problem of adverse selection arise in any market?
QUESTION 4The CEO and stockholders are not necessarily the same people. This gives rise to
A) upstream and downstream contracts.
B) a principal-agent problem.
C) complete contracts.
D) a control over moral hazard.
QUESTION 5At a Nash equilibrium:
a. each firm is said to be doing as well as it can, regardless of the actions of its competitor.
b. each firm is said to be doing as well as it can, given the actions of its competitor.
c. firms always choose strategies in order to maximize the social welfare.
d. firms always choose strategies to avoid the worst possible outcome.
QUESTION 6Mention some of the ways in which the problem of asymmetric information can be reduced.
QUESTION 7Without enforcement, a contract
A) is binding.
B) is lateral in form.
C) is costless to enforce.
D) not really binding.
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