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Unformatted text preview: Econ 415 Spring 2007 Exam 1 Blue Name ( Please PRINT ): Last Name First Name Student ID #: Place a checkmark next to your section number then record the 4-digit section number on the scantron. 0101 Monday/Wednesday 9:00 10:15 p.m. 0201 Monday/Wednesday 10:30 a.m. 11:45 a.m. No graphing calculators are allowed. No brimmed hats are allowed. If you are wearing a hat with a brim, turn the brim to the back. All cell phones are to be turned off and put away. You will be in danger of receiving a zero on the exam if your cell phone is on or not put away Do not begin the exam until the instructor tells you to. While waiting, fill out your scantron completely and accurately and read the remaining instructions on this page. If any suspicious behavior is noted, you will be moved and may also receive a zero on the exam. Cheating will not be tolerated. Exam 1 contains 40 questions on 8 pages. Please be sure that you have 8 pages in your test booklet. If not, please inform the instructor before you begin the exam. Please mark all answers on BOTH the test booklet and the scantron. Once you are finished, please take both your test booklet AND answer sheet to the proper station. Econ 415 Page 1 of 8 Spring 2007 Exam 1 Blue 1. Ex-ante, before an insurance contract is signed, insurance companies face a(n) _________ problem. Ex-post, once the policy is in place, these companies face a(n) _________ problem. a) Moral Hazard; Public Good c) Moral Hazard; Adverse Selection b) Adverse Selection; Moral Hazard d) Public Good; Moral Hazard Consider the following problem. A steel factory generates pollution, imposing an external cost [P] on its neighbors, who operate a tourist resort nearby. The pollution can be eliminated if the steel factory incurs the cost [S] of installing scrubbers on its smokestacks. Alternatively, damages done by the pollution can be avoided if the neighbors incur the cost [T] of changing the way they use their land, growing timber rather than operating a tourist resort. 2. Suppose P < S < T. Granting the neighbors a property right will: a) lead to an efficient outcome, regardless of the level of transaction costs. b) potentially lead to an inefficient outcome due to costs created by the holdout problem. c) potentially lead to an inefficient outcome due to costs created by the public good problem. d) potentially lead to an inefficient outcome due to costs of litigation and court errors. e) potentially lead to an inefficient outcome because of negotiation costs.. 3. Suppose P < S < T. Granting the neighbors a liability right will: a) lead to an efficient outcome, regardless of the level of transaction costs. b) potentially lead to an inefficient outcome due to costs created by the holdout problem....
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This note was uploaded on 03/18/2011 for the course ECON 415 taught by Professor Holland during the Spring '09 term at Purdue University-West Lafayette.
- Spring '09