Question 1

Liquidated damages are not limited to compensation for harm and are intended as penalties for particular actions.

Accepted Answer

Liquidated damages are intended to be a reasonable estimate of the actual harm that may be caused by a breach of contract, and not as penalties for particular actions. Penalties are not enforceable under contract law.

Question 2

Contracts are governed by both common law and by statutes pertaining to particular types of contracts and transactions.

Accepted Answer

Contracts are indeed governed by both common law and statutes, such as the Uniform Commercial Code for sales and the Statute of Frauds.

Question 3

The Coase theorem indicates that the distributive consequences of a legal standard can be independent of their efficiency consequences.

Accepted Answer

The Coase theorem states that if transaction costs are low and property rights are clearly defined, then private actors can bargain among themselves to reach an efficient outcome regardless of the initial legal allocation of property rights. The theorem does not address distributive consequences, only efficiency.

Question 4

A trade secret is almost anything that is unique and of value or potential value to a company.

Accepted Answer

A trade secret can be any confidential information or knowledge that gives a business a competitive advantage and is not generally known to the public or competitors. This can include formulas, processes, customer lists, and other proprietary information.

Question 5

Intellectual property is generally protected indefinitely.

Accepted Answer

Intellectual property is not protected indefinitely. The duration of protection varies depending on the type of intellectual property and the country where it is being protected. For example, patents generally have a maximum term of 20 years in most countries, while copyrights may last for several decades after the death of the author. Trademarks can be renewed indefinitely, but may be cancelled if they are not actively used.

Question 6

The legal standard for imposing compensatory damages is higher than that for punitive damages.

Accepted Answer

The legal standard for imposing punitive damages is higher than that for compensatory damages. Punitive damages are meant to punish and deter extreme misconduct, while compensatory damages are meant to compensate the victim for their losses.

Question 7

Contracts make the mortgage lending market possible.

Accepted Answer

Contracts such as mortgage contracts, purchase agreements, and deeds of trust create legal and financial obligations that make the lending and borrowing of money for the purchase of real estate possible.

Question 8

The principal form of damage awarded in liability cases is punitive damage.

Accepted Answer

The principal form of damage awarded in liability cases is compensatory damages, which aim to compensate the plaintiff for their losses. Punitive damages may also be awarded in cases where the defendant's conduct was particularly egregious, but they are not the principal form of damages.

Question 9

The appropriability of returns in the music and film industries has been adversely affected by the advancement of Internet and MP3 technology.

Accepted Answer

With the availability of digital downloads and file sharing, it has become easier for consumers to obtain music and movies without paying for them, leading to a decrease in the ability of producers to appropriate the returns on their investments.

Question 10

One purpose of contracts is to reduce transactions costs associated with circumstances that develop during the fulfillment of the agreement.

Accepted Answer

Contracts help establish clear expectations and responsibilities, and provide remedies for breach or unforeseen circumstances, which can help minimize disputes and associated costs.

Question 11

The benefit of a patented invention to society increases with the duration of its monopoly.

Accepted Answer

A longer monopoly duration may lead to higher prices and limited access to the invention, which can potentially harm society. Additionally, a shorter monopoly period can encourage faster innovation and competition, leading to more benefits for society in the long run.

Question 12

The purpose of the tort system is to provide incentives for people and firms to take care to avoid harm.

Accepted Answer

The tort system operates on the principle of imposing liability on those who cause harm to others, which creates an incentive for individuals and businesses to act more carefully in order to avoid lawsuits and financial damages.

Question 13

The advantage of civil law is that it can adjust to changing circumstances without having to wait for new statutes to be enacted by legislation.

Accepted Answer

Civil law systems rely heavily on codified statutes and laws that are applied and interpreted by judges. Changes in the law typically require legislative action to amend existing codes or enact new ones, making it less flexible in adapting to new circumstances without legislative intervention.

Question 14

Breaches are permissible under circumstances where it is economically efficient not to fulfill the conditions of the contract.

Accepted Answer

Economic efficiency may require breaching a contract if it would result in lower overall costs or greater benefits. However, such breaches must be justified and can still result in legal and financial consequences.

Question 15

Liability costs affect the prices of products and safety decisions.

Accepted Answer

When a company faces potential liability costs, they often pass on those costs to consumers through increased prices. Additionally, liability concerns can influence a company's safety decisions, as they may make choices to avoid potential lawsuits and damages.

Question 16

A feasible alternative to public order provided by the law is private order based on private assurances among trading partners.

Accepted Answer

Private order is an alternative to public order and is based on private assurances among trading partners. This means that the law is not involved in regulating their transactions, and instead, the parties themselves agree on the terms of their exchange and enforce them through private means.

Question 17

The liability system impedes decentralized decision making on the part of producers and consumers.

Accepted Answer

The liability system actually encourages decentralized decision-making by holding producers and consumers accountable for their actions, thereby promoting responsible behavior and informed choices.

Question 18

A design is defective if a "reasonable alternative design" is available to reduce or avoid a foreseeable risk.

Accepted Answer

This is the definition of the legal concept of product liability, which holds manufacturers responsible for injuries or damages caused by defective products. A reasonable alternative design is a design that would have reduced or avoided the risk of harm associated with the product, and that would have been feasible and economically reasonable at the time the product was manufactured.

Question 19

Trade secret protection can never be perpetual, and the secrets have to be registered in order to ensure their protection.

Accepted Answer

Trade secret protection can potentially last indefinitely as long as the secret remains a secret. However, once the secret is revealed or becomes publicly known, the protection ends. Furthermore, trade secrets do not need to be registered in order to receive protection, unlike patents or trademarks.

Question 20

A copyright must be filed with the government to be considered valid.

Accepted Answer

Although registering for copyright with the government is strongly advised, copyright protection exists as soon as an original work is created and fixed in a tangible form.

Quiz 14: Law and Markets