In the Presence of Asymmetric Information,a Contingent Contract

question 77

Multiple Choice

In the presence of asymmetric information,a contingent contract

• A) achieves production efficiency.
• B) can lead to opportunistic behavior on the part of the agent.
• C) is impossible to write.
• D) will result in the principal earning all of the profit.

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Definitions:

Comparative Advantage

The capacity of a person or collective to conduct a specific economic operation more effectively compared to another.

Absolute Advantage

The ability of an individual, company, or country to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.

Jobs Argument

An economic perspective that emphasizes the creation or maintenance of employment as a primary consideration in policy-making.

Unfair-Competition Argument

A contention in international trade that certain practices give companies or countries an unjust advantage, such as labor exploitation or environmental bypassing.