Question

1. contract may facilitate exchange when which of the following is true? a. one party is...

1. contract may facilitate exchange when which of the following is true?

a. one party is monopolist so there's no perfect competition

b. exchange is deferred

c. no transaction cost

d. none

4. Suppose one party to a contract breaches the contract due to particular contingency but the contract is silent as to which party should bear the risk of that contingency. Econ efficiency suggests which party should bear the risk?

a. breaching party

b. non-breaching party

c. whichever party would have the least cost avoider

d. not enough enfo

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Homework Answers

Answer #1

1> b. exchange is deferred

When the exchange is deferred, then by contract, each party is obliged to the terms of the contract. Thus, they can not get away from the terms in the future. Thus, for future exchange of any goods and services, agreement in the form of contract is used in general.

2> c. whichever party would have the least cost avoider

If the outcome is to be economically efficient, then the cost of something should be the least. Here, the party which has the least cost to avoid leads to the most profitable outcome as a whole for the society, thus c is correct.

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