Question

1.True or false questions (explain answer briefly)

a). Transportation cost is not an economic cost.

b). Bundling is a case of second degree of price discrimination.

c). A employee-specific investment may lead to moral hazard behavior in employee’s side.

d). Consumers would like to pay a higher price for watermelon that is already opened because they can see the quality. This is a phenomenon relates to moral hazard.

Answer 1

1.

A

True

Transportation cost is an accounting cost that incurs directly out of the pocket and is real. So, it is not treated as economic cost.

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B.

False

It is the bulk purchase or buying in bigger quantity and giving discounts, that creates second degree price discrimination. But selling in bulk is a different concept to bundling. In bundling, two or more different products are combined as one package before selling to the consumers.

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C.

True

Such investment can lead the employee to take risky behavior that can lead losses to be compensated by the other people. So, it is a case of moral hazard.

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D.

False

It is a phenomenon related to adverse selection, where information becomes symmetrical between buyers and sellers. As a result, buyers are willing to pay a higher price.