Exam 18: Assymmetric Information, the Rules of the Game, and Externalities

Gisela and Lynn are friends. New clothing is the only good that gives them utility. Each girl spends a certain amount of money per year on clothing. Let x be the amount that Gisela spends on clothing (in thousands of dollars)and let y be the amount of money (in thousands of dollars)that Lynn spends. Gisela's utility expressed as a function of x and y is given by: UG(x, y)= 12x - x2 - xy and Lynn's utility is given by UL(x, y)= 12y - y2 - xy. i)Calculate x* and y* that Lynn and Gisela spend on clothing when they maximize their utility functions independent of each other. ii)Calculate the efficient amount of money to be spent on clothing by each of them. iii)Do they spend too much or too little on clothing? Explain.

A major problem which plagues cost- benefit analysis is:

The practice of officers purchasing their commissions in the British Army was:

Property rights:

A good with a negative externality will be by an unregulated market. Public goods are typically due to there being a _ _.

According to the Coase theorem part 1:

Eliminating information asymmetry:

The switch in property rights from fault to no- fault divorce resulted in a situation where:

The no- fault divorce law was the main factor affecting the increase in the divorce rate in the last forty years.

According to neoclassical economics:

Property rights are incomplete because:

The cost- benefit analysis is fraught with difficulty:

Coase theorem part 2 says that:

Which of the following is false?

Pure public goods are:

Build a case supporting the following claim: "The concept of transaction costs has revolutionized economics."

A nonrivalrous good is:

The marginal social value curve for a public good is the:

The rules of the game refer to:

If transactions costs exist, then the following is definitely not true: