The matrix given below represents the payoffs to producer Hansel and purchaser Gretel from a transaction.Hansel is the producer of Good X and Gretel is the purchaser.Assume that Gretel has no incentive to break the contract.

-Refer to Table .If the law requires Hansel to pay $10 to Gretel for breaching the contract:
A)Hansel would breach the agreement even when economic efficiency requires him to keep the agreement.
B)Hansel would abide by the agreement even when economic efficiency requires that he breach it.
C)Hansel would abide by the agreement and total economic value of the transaction will be maximized.
D)Hansel would breach the agreement and total economic value of the transaction will be maximized.

Question

The matrix given below represents the payoffs to producer Hansel and purchaser Gretel from a transaction.Hansel is the producer of Good X and Gretel is the purchaser.Assume that Gretel has no incentive to break the contract.

-Refer to Table .If the law requires Hansel to pay $10 to Gretel for breaching the contract:

-Refer to Table .If the law requires Hansel to pay $10 to Gretel for breaching the contract:
A)Hansel would breach the agreement even when economic efficiency requires him to keep the agreement. 
B)Hansel would abide by the agreement even when economic efficiency requires that he breach it. 
C)Hansel would abide by the agreement and total economic value of the transaction will be maximized. 
D)Hansel would breach the agreement and total economic value of the transaction will be maximized.

Quizplus · Accepted Answer

If the penalty for breaching the contract is $10, Hansel might choose to abide by the agreement even if breaching it would lead to a more economically efficient outcome, as the cost of breaching may outweigh the benefits.

The Matrix Given Below Represents the Payoffs to Producer Hansel