ECO320 Final Exam Latest Update -

ECO320 Final Exam Latest Update - Actual Exam from Credible Source with 285 Questions and 100% Verified Detailed Correct Answers Guaranteed A+ Approved by Professor

"Central Problem" - CORRECT ANSWER: - optimality in the economic analysis of law

• maximize social surplus

"Does the contingent fee protect the client from his own ignorance about the service he is buying, by aligning the lawyer's interests with the client's?" - CORRECT ANSWER: (1) The contingent fee does not necessarily put the lawyer on the client's side or automatically lead him to do what the client would desire if the client could understand the nature of his case and the intricacies of litigation

(2) The chief economic justification for the contingent fee is the shifting of risk it provides, but alternative arrangements tailored to a client's special attitudes toward risk could improve the welfare of both client and lawyer

(3) No a priori reason supports the notion that the contingent fee benefits lawyers as a group. Whether it does depends on the attitudes of clients and lawyers toward risk, the uncertainties of personal-injury litigation, and the existence of minimum and maximum fee schedules

(a) If the plaintiff is more averse to risk than his or her lawyer, would this fact incline the client to prefer a contingency fee or an hourly fee?(b) Under a contingency fee, the plaintiff bears none of the lawyer's costs of a trial.Consequently, the plaintiff can take a hard position in bargaining over a settlement.Explain why the plaintiff's lawyer might also benefit from this commitment to hard bargaining. - CORRECT ANSWER: (a) A contingency fee allows risk averse plaintiffs to transfer the risk of losing to their lawyers.

(b) Since hard bargaining means the plaintiff's threat point in bargaining for a settlement increases, then the lawyer's share of a higher settlement that results increases. 1 / 4

(a) Who is the ultimate bearer of the costs of harm under a rule of simple negligence?Explain your answer. - CORRECT ANSWER: (a) The "ultimate bearer" of harm is an economic (not legal) proposition and it basically means the party who can most efficiently bear the loss.

• In general, the ultimate bearer of harm internalizes the benefits of any of his or her

actions that reduce the probability or severity of accidents, including more precaution and less activity

• In simple negligence that would be the claimant

3 Elements of Tort Law - CORRECT ANSWER: * must be present for recovery by the

plaintiff -->

(1) Harm - plaintiff must have suffered harm (i.e., a downward shift in the plaintiff's utility/profit

(2) Cause - defense must have caused the plaintiff's harm (i.e., "cause-in-fact": but-for test --> but for A, would B have occurred?); proximity is required

(3) Breach of Duty - plaintiff must demonstrate that the defendant breached a duty that they owed & the breach caused the harm; a standard of care is owed & breached

A group of risk neutral computer science graduates from Ryerson decide to form a gang to raid bank accounts from local banks. Each gang member agrees to divide the proceeds of crime equally in the amount B = $50,000 per member. The opportunity cost of going to jail is T = $2,000 per month. p is the probability of being caught and convicted. S is the length of jail time measured in months that is imposed as a sentence.

(a) What is the condition that describes when one of these will commit a crime?

(b) Suppose there are 80 gang members and p = 0.25. What is the optimal sentence?

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(c) Suppose for every $1 earned by the gang member, there is an additional public social cost of $3. What are the social costs? Explain - CORRECT ANSWER: (a) B > pTS

(b) pTS < B

• S > B/pT
• S > 50,000/(0.25(2,000)
• S > 50,000/500
• S > 100 months (8 years and 4 months)

(c) In this model, the social costs = $0 since the mandatory minimum works to deter the 80 gang members.

A home buyer (B) and seller (S) of a house agree on a price of $3,000,000.00, 25% paid immediately and 75% paid upon delivery of keys and property registration. Before the date of delivery, B calls S saying she has learned that a new chemical station will be constructed nearby which reduces the value of the house for her. The value of the house after the news for B is $2,000,000.00 and for S is $1,500,000.00.

(a) What is the efficient outcome? Why?

(b) Explain why the Expectation Damages Rule is optimal in this transaction? - CORRECT ANSWER: (a) The most efficient remedy from society's point of view is to have B own the house.

• Even if B argues that its "net loss" is $3,000,000.00 - $2,000,000.00 = $1,000,000.00,

its net loss is still smaller than that of S - $3,000,000.00 - $1,500,000.00 =

$1,500,000.00

(b) Under the expected damages rule, S would be entitled to sue B for $1,500,000.00 - 3,000,000.00(25%) = $1,500,000.00 - 750,000.00 = $750,000.00, if B tried to walk away from the Agreement. 3 / 4

• If B were rational, then she would choose the $1,000,000.00 loss over the

$1,500,000.00 liability. - This illustrates that the expected damages rule is optimal for society.

A non-voluntary transaction never increases utility. True or False? Explain the economic

reasoning behind your answer. - CORRECT ANSWER: * False *

• Goods that are traded through voluntary exchange move to those who value them the

most and, in doing so, makes both parties better off. (Theorem of Coase)

• Goods that exchange hands without the consent of both parties - as by theft - do not

make both parties better off.

• However, a non-voluntary transaction does increase utility in some cases.
• i.e., the Marginal Benefit to the person(s) taking a good may be very high and the

Marginal Cost to the person from whom it was taken may be very small.

• Such a transaction would clearly increase total utility (i.e., would be efficient) even

though the transaction was non-voluntary

Acceptance (Contracts) - CORRECT ANSWER: - parties must have the capacity to

understand the terms of the contract they are entering into & the consequences of the promises they make in oder to accept

• minors, animals, mentally disabled individuals cannot accept due to not having the

capacity --> any contracts will be considered void or voidable

• also, contracts cannot be for illegal purposes

Activity Level - CORRECT ANSWER: - overall amount of energy & behavior a person exhibits (overall activity)

• usually, one party's activity level affects accidents more than the other party's activity

level

• efficiency requires choosing a liability rule so that the party whose activity level most

affects accidents bears the ultimate cost of accidental harm

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