PS6_answers - Legal Studies 145 - Law and Economics I...

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Legal Studies 145 - Law and Economics I Answers to P ROBLEM S ET #6 1. (a) In theory, expectation damages give the Professor the "benefit of her bargain." Professor's subjective valuation of the house less the contract price of $350,000 is the ideal measure of Professor's expectation. Unfortunately, we do not know Professor's subjective evaluation. In many contexts, the law "measures" Professor's expectation as the market price less the contract price. In (thick) markets for fungible (or interchangeable) goods, this formula allows Ms. Professor to realize her expectation, since she may purchase the desired good at the market price, thereby realizing a value of (Subjective Value of Performance minus Market Price). When added to her damages of (Market Price minus Contract Price), this gives her the benefit of her bargain (Subjective Valuation minus Contract Price). The facts of the case offer two different measures of the market price. One is the $400,000 price at which Honest sold his house; use of this measure assumes that the ultimate buyer had no special reason to value Honest's house more than the
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PS6_answers - Legal Studies 145 - Law and Economics I...

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