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Study Points
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Principle-Agent Problem
CEO-Shareholder Relationship
Selling Off Toxic Assets
Self-Interest over Clients Interest
Is Greed Actually Good?
Underground Economies
Deadweight Tax
Study Point #1
Principle-Agent Problem
• Located on Pg. 39
• Companies hire agents (workers) to run their
businesses. However, these workers are not
always thinking about the companies best
interest. That is why companies try to
incentivizes the customer to report when
these workers are doing something they
shouldn't be doing.
Study Point #2
CEO-Stockholder Relationships
• Located on Pgs. 39-41
• The CEO is the person who runs the company,
but they are not the people who own the
company. Those people are the shareholders.
The CEO can make decisions that benefit him
in the short term, but hurt the shareholders in
the long run.
Study Point #3
Selling off Toxic Assets
• Located on Pgs. 41-42
• Banks are the ones that loan you the money
to make purchases, known as loans. However,
instead of waiting years for you to pay off your
loan, they bundle your loan with other
peoples loans and sell then off to a third party.
Study Point #4
Self-Interest over Clients Interest
• Located on Pgs. 43-44
• When we need help getting a job or deal done
we hire people to do it for us. Such as when
you are selling you house you hire a real
estate agent. However, many times these
people we hire put their interest over our
interest their clients.
Study Point #5
Is Greed Actually Good?
• Located on pg. 44
• Economics teaches us how to get the incentives
right. As Gordon Gekko says greed is good, so make
sure that you have it on your side. However, greed
can be bad. Some of the most interesting problems
in economics involves situations in which a rational
individual acting in their own best interest do things
that make themselves worse off.
Study Point #6
Underground Economies
• Located on Pgs. 50-51
• If tax rates get high enough, individuals and
firms may slip into the “underground
economy” where they opt to break the law
and avoid taxes entirely.
Study Point #7
Dead Weight Taxes
• Located on Pgs. 51-52
• We should not place a tax on the sale of red
sports cars. The tax could be avoided, easily
and legal, by buying cars in a different color.
The government collects no revenue and
sports car enthusiast do not get to drive red
cars. This phenomenon, whereby taxes make
individual worse off without making anyone
else's better.