Contract Formation and Enforcement (chap6)

Question 1

Definition of contract

Answer 1

it is a legally binding agreement between parties about a future transfer of entitlement in exchange for another entitlement

Question 2

Economics contracts

Answer 2

it can be viewed as an arrangement about entitlements aimed at maximizing welfare gains

Question 3

Parts of contracts

Answer 3

offer

acceptance

considerations

Question 4

what happens when in a contract there is no consideration?

Answer 4

it would be considered a gratuitous promise (no-contract)

also In gifts there is not consideration necessary

Question 5

neoclasical assumption

Answer 5

• markets are perfectly competitive
• participants act rationally
• information is complete
• there is no externalities
• zero transaction cost

Question 6

The risk of litigation

Answer 6

• Resolving disputes trought litigation may have negative implications for the future exchange (that we suppose facilitate)

long term relationship may be endanger.