Is the conflict between a lender to a firm and the borrower/owner an example of adverse selection or moral hazard? Explain.
What will be an ideal response?
This is an example of moral hazard. The owner (borrower) is encouraged to take more risk since if the greater risk results in a higher return, the lender obtains just what the loan agreement specifies, usually a return of principal and interest. The owner (borrower) keeps anything above that, so the gains from taking the greater risk all belong to the borrower.
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The power of the U.S. government to seize private property or exercise the right of eminent domain was an English innovation
Indicate whether the statement is true or false
Government intervention can increase total welfare when
A) there are costs or benefits that are external to the market. B) consumers do not have perfect information about product quality. C) a high price makes the product unaffordable for most consumers. D) all of the above E) A and B only
A decrease in the price level
A) shifts the SRAS curve to the right. B) shifts the SRAS curve to the left. C) causes an upward movement along the existing SRAS curve. D) causes a downward movement along the existing SRAS curve. E) none of the above
What are tax loopholes and what are their effects?
What will be an ideal response?