THE ECONOMY’S INCOME AND EXPENDITURE

THE ECONOMY’S INCOME AND EXPENDITURE If you were to judge how a person is doing economically, you might first look at his or her income. A person with a high income can more easily afford life’s necessities and luxuries. It is no surprise that people with...

PROBLEMS AND APPLICATIONS

PROBLEMS AND APPLICATIONS I. Each of the following situations involves moral hazard. In each case, identify the principal and the agent, and explain why there is asymmetric information. How does the action described reduce the problem of moral hazard? a. Landlords...

QUESTIONS FOR REVIEW

QUESTIONS FOR REVIEW I. What is moral hazard? List three things an employer might do to reduce the severity of this problem. 2. What is adverse selection? Give an example of a market in which adverse selection might be a problem. 3. Define signaling and screening and...

The Psychology of Saving

The Psychology of Saving Economists interested in behavioral economics have devoted much energy to studying why people don’t save more. A Quick Way to Build a Nation of Savers Americans seem to hate saving. In October, the nation’s households saved just...

CONCLUSION

CONCLUSION This chapter has examined the frontier of microeconomics. You may have noticed that we have sketched out ideas rather than fully developing them. This is no accident. One reason is that you might study these topics in more detail in advanced courses....

PEOPLE ARE INCONSISTENT OVER TIME

PEOPLE ARE INCONSISTENT OVER TIME Imagine some dreary task, such as doing your laundry, shoveling snow off your driveway, or filling out your income tax forms. Now consider the following questions. 1. Would you prefer (A) to spend 50 minutes doing the task right now...