Figure 7-1 -Refer to Figure 7-1.What Does Area C Represent

question 7

Multiple Choice

Figure 7-1

-Refer to Figure 7-1.What does area C represent

• A)the decrease in consumer surplus to new consumers who enter the market when the price falls from P₂ to P₁
• B)the increase in consumer surplus to new consumers who enter the market when the price falls from P₂ to P₁
• C)an increase in producer surplus when quantity sold increases from Q₂ to Q₁
• D)a decrease in consumer surplus to each consumer in the market when the price falls from P₂ to P₁

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Definitions:

Stock Options

Financial derivatives that grant the holder the right, but not the obligation, to buy or sell a stock at a specified price within a certain time frame.

Principal-Agent Problem

(1) At a firm, a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals’ (stockholders’) goals. (2) In public choice theory, a conflict of interest that arises when elected officials (who are the agents of the people) pursue policies that are in their own interests rather than policies that would be in the better interests of the public (the principals).

Profit Sharing Plans

A company program that gives employees a share in the profits of the company.

Principal-Agent Problem

A dilemma in which one party (the agent) is supposed to act in the best interest of another party (the principal) but may act in their own interest instead, leading to inefficiencies.