1. ECO 550 Week 7 Quiz
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week-7-quiz/
Question 1
1. Which of the following remedies can be used to prevent the beekeeper and the farmer from
breaking the contract?
Separating the ownership and management of the bees and trees.
Merging the ownership and management of the bees and the trees.
Providing the farmer a larger share of the net benefit received from the contract.
Providing the bee keeper a larger share of the net benefit received from the contract.
Question 2
1. Which of the following exemplifies inefficient legal assignment of rights with high
transaction costs?
Agreement between an orchard farmer and a beekeeper.
LoJack installation in cars to prevent car theft.
The Huntington Beach oil wells.
Installation of smog control in cars.
Question 3
1. Which of the following is an aim of a price-fixing agreement?
Reducing entry barriers
Increasing profit
Reducing price
Increasing demand

2. Question 4
1. How can the government cut the cost of negotiation among car owners regarding LoJack
installation?
The government can impose a quota on the import of LoJacks.
The government can invite public opinion on LoJacks.
The government can limit the number of companies producing LoJacks.
The government can randomly select cars to install LoJacks.
Question 5
1. Which of the following was an outcome of uncoordinated oil drilling in Huntington Beach,
California? Answer
The entire oil present underground had been extracted within few years.
Underground oil pressure had increased due to excessive drilling leading to an oil spill into the
adjacent sea.
A majority of the oil could not be drilled out as low underground pressure prevented oil from
reaching the surface.
The oil belt suffered frequent earthquakes as excessive drilling had loosened the soil bonding.
Question 6
1. Which of the following is a new law on fishing imposed by the government to increase the
total supply of fish?
Holders of fishing rights are not allowed to resell them to others.
Governments have issued licenses that limit catches and fishing seasons.
Quotas have enforced higher catches in coastal areas.
Governments around the world have reduced their offshore jurisdictions.
Question 7
1. In a society, if negotiation among parties leads to a politically unsatisfactory distribution of
income:

3. the legislature can enact laws to redistribute this income.
the society can on its own reallocate resources to bring about a politically satisfactory outcome.
the parties will renegotiate until they reach a politically satisfactory outcome.
the parties will refuse to carry out future transactions.
Question 8
1. Government has the power to reduce the _____ associated with air pollution by automobiles
because it can force changes in car design, can impose taxes on drivers, and has the power to
punish those who fail to comply.Answer
private cost
transaction cost
opportunity cost
positive externality
Question 9
1. Assume that the market for executive travel is perfectly competitive. If the availability of
time-sharing reduces transaction costs and the owner’s cost of negotiating for a single trip, which
of the following situations must occur?
The hours of flight available will increase.
The hours of flight available will decrease.
The cost of flying will remain steady.
The cost of flying will increase.
Question 10
1. If the costs of negotiating and enforcing contracts are _____ relative to the benefits, buyers
and sellers have incentives to make economically efficient arrangements that _____ value.
high; increase
low; increase
high, decrease

4. low; decrease
Question 11
1. According to Coasian reasoning, if negotiation is costless:Answer
irrespective of the initial distribution of rights, the efficient outcome will minimize the net
benefit of the group.
the efficient outcome will minimize the net benefit of the individual who has more rights
compared to the others in the group.
irrespective of the initial distribution of rights, the efficient outcome will maximize the net
benefit of the group.
the efficient outcome will maximize the net benefit of the individual who has more rights
compared to the others in a group.
Question 12
1. According to economists, an individual who tries to derive utility from the consumption of a
good without paying for it is called:Answer
a utility maximizer.
a free rider.
an opportunist.
a profit maximizer.
Question 13
1. Inclusive property rights provide an investor:Answer
more options and greater incentives to avoid inefficient choices.
an insight to future earnings and revenue generation.
a definite return on the investment.
cost effective techniques of production leading to economies of scale.
Question 14

5. 1. The cash or concessions present in contract terms that parties agree to in order to share risks
are called: Answer
quid pro quos.
property rights.
flexible takes.
contract prices.
Question 15
1. Which of the following is an example of an obligation associated with a right?Answer
Providing adequate notice period to your tenants to vacate your house.
Allowing your kids to play with other children in the neighborhood.
Allowing neighbors to use your lawn to maintain healthy public relations.
Providing proper education and adequate nutrition to your children.
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Question 16
2. A travel agency enters into a contract with a hotel chain which gives it priority access to 25
percent of its rooms in major tourist destinations throughout the year. The contract encourages
the hotel chain to increase the number of rooms in each of these hotels. The investment made by
the hotel chain corresponds to which of the following aspects of specificity?
Task specificity
Locational specificity
Dedicated specificity
Human specificity
Question 17
2. If parties to a contract can anticipate the court’s decision in the event of a dispute with some
degree of certainty:
opportunistic behavior will never be detected.

6. opportunistic behavior will be partially detected.
there will be less room for opportunism.
only one of the parties will be able to act opportunistically.
Question 18
2. Refer to Table 10-1. What would be the combined gain of the two if both breach the
unitization contract?
The matrix given below represents the payoffs to oil well owners Mike and Frasel if they enter
into a unitization contract. Each of the owners know the exact amount of oil in the pool and the
market price of oil.
Table 10-1
$22
$20
$28
$32
Question 19
2. Fixing a payment schedule in an agreement:
allows the seller to easily access loanable funds.
increases the uncertainty associated with the cost of production.
allows the seller to charge a high price for his product.
ensures the delivery of goods at a high price.
Question 20
2. Which of the following can be classified as a highly specific asset?
A country’s soldiers
A wind turbine in an installation that produces "renewable" electricity
A cattle farm

7. A cruise ship
Question 21
2. Suppose Jonah and Carlos have a contract, which Carlos chooses to breach. Jonah sues, and a
court orders Carlos to pay him the amount he expected to gain at the time they made the contract,
net of any amount he actually did receive after the breach. The form of payment which the court
specifies in this example is called:
a contingent fee.
a specific performance.
a capitation.
expectation damages.
Question 22
2. Which of the following is a legal remedy for a breach of the contract between parties?
Liquidated damages
Imprisonment
Unitization
Specificity
Question 23
2. Refer to Table 10-1. Under expectation damages, Frasel’s breach of the contract would lower
his net payoff to:
The matrix given below represents the payoffs to oil well owners Mike and Frasel if they enter
into a unitization contract. Each of the owners know the exact amount of oil in the pool and the
market price of oil.
Table 10-1
$6.
$8.
$16.
$10.

8. Question 24
2. _____ is an example of human specificity which raises the risks associated with opportunism.
Car insurance purchased by an individual for his/her favorite car.
Investment of an employer in company-specific skills.
Purchasing immovable machines for a particular facility.
Investment in research and development
Question 25
2. Escalators present in a contract must state:
at what interval the contract price should automatically change at a fixed rate.
when the price will change and by what formula the new price will be calculated.
when the contract should be terminated and how the cost of termination should be shared.
when the contract should be renewed and the terms governing the renewal.
Question 26
2. Which of the following will be an efficient payment scheme for a defendant’s attorney, who
is experienced in handling similar cases in the past?
Contingency fees
Capitation fees
Hourly billing
Quality based billing
Question 27
2. A payment arrangement between an attorney and a plaintiff, in which the plaintiff agrees to
pay a certain lump-sum amount at the outset and no more in the future, regardless of how the
case develops is called:
contingency fees.
capitation fees.

9. liquidation.
one-time settlement.
Question 28
2. Which of the following examples can be associated with the task specificity aspect of an
asset?
An employer’s investment in employee skill building.
Purchasing machines which can be used to produce only a particular product.
Building a facility in a low cost locality.
An employer’s investment in office renovation.
Question 29
2. _____ is a contract that specifies actions to be taken if various situations come to prevail.
An insurance policy
Contingency
Unitization
An escalator
Question 30
2. Which of the following may require the parties to renegotiate certain parts of a contract if
market conditions change drastically?Answer
Termination clause
Omnibus clause
Adjustment clause
Reopener clause
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