Under What Circumstance Would It Be Logical to Leave Contracts

question 24

Multiple Choice

Under what circumstance would it be logical to leave contracts vague and open-ended?

• A)When performance may be ambiguous or difficult to measure.
• B)When one of the firms in the contract is much larger than the other firm
• C)If there are many other firms that can provide the same service or product
• D)When the cost of writing the contract is too high
• E)If the smaller of the two contracting firms is the upstream firm

Analyze the effects of positive and negative externalities on private and social costs and benefits.

Evaluate the role of government interventions such as taxes, subsidies, and regulations in correcting market inefficiencies caused by externalities.

Distinguish between private and social values/costs in the context of externalities.

Recognize the significance of internalizing external costs and benefits to achieve social efficiency.

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Definitions:

Prime Rate

The interest rate that banks charge their most credit-worthy customers, usually a basis for other interest rates.

Interest Banks

Financial institutions that primarily engage in dealings with interest rates, offering services such as saving accounts and loans.

Maturity

The state at which an entity, such as a financial instrument or product, has fully developed or reached its maximum potential.

Interest

The cost of borrowing money, often expressed as a percentage of the amount borrowed.