This exam has three questions.  The first two count 15 points apiece.  The third counts 20.  50 points, 50 minutes.  Allocate your time wisely. 

This examination ends at 10:50.  You may work past 10:50, but at a price of 2 points per minute.  This rule will be strictly enforced. 

If you have any questions please go out into the hall and ask me there. 

Clear, concise, and correct answers are best.  Think before you write.  Good luck! 

1.    State the Coase Theorem. 

2.  Professional athletes often contractually agree not to engage in dangerous activities such as skydiving or skiing during the life of the contract. 

3.  Newspapers base advertising rates in part on circulation: the number of copies that are sold or given away as promotions.  This is particularly the case when advertisers agree to purchase large quantities of advertising over a significant period of time.  One reason advertising rates are based on circulation is that doing so provides newspapers incentives to produce high quality products that people will buy and/or read.  Agreements between newspapers and advertisers can be interpreted as incentive contracts; the rate advertisers pay per reader can be interpreted as a sort of performance incentive. 

Recently we have seen the emergence of on-line newspapers on the world wide web, and advertisements have begun to appear on web pages.  Unlike print ads, readers can click on these advertisements to obtain further information about the advertiser.