18. If a firm borrows a large sum of money, it may engage in particularly risky investments knowing that if the investments succeed, the firm will make lots of money, while if the investments fail, the firm can declare bankruptcy. This is an example of: (A) moral hazard (B) adverse selection (C) risk averse (D) risk taking

1. When the local used bookstore prices economics books at $20.00 each, they generally sell 70 per month. If they lower the price to $8.00 each, they sell 90. Hence, the elasticity of demand for these economics books is (A) 3.43, so this store should lower price to raise total revenue. (B) 3.43, so this store should raise price to raise total revenue. (C) 0.29, so this store should lower price to raise total revenue. (D) 0.29, so this store should raise price to raise total revenue.

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