Will the problems of credit markets disappear when developing countries become more affluent?
What will be an ideal response?
Answer: The general problems of credit markets discussed in this chapter are the same in all countries so these problems will not disappear. There are nevertheless some specifics related to development countries. First of all, it is less easy to use collateral in lending in developing countries because people are poorer. Moreover, weaker institutions may make is less easy to use collateral even when it exists.
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The economic way of thinking
A) studies facts without using theories. B) explains how social order and cooperation emerge from the actions of individuals. C) is free of biases and assumptions. D) includes all of the above features.
A financial bubble starts to inflate when:
A. investors become irrationally optimistic that an asset's price will continue to rise. B. investors become irrationally pessimistic that an asset needs to be sold immediately. C. a good experiences an unexplained rise in demand increasing its price. D. inflation begins to accelerate, and monetary and fiscal policy are ineffective at slowing its growth.
Briefly explain the national defense argument for the use of import barriers on goods that would be important in the case of a military emergency.
What will be an ideal response?
Individual transferable quotas (ITQs):
A. promote efficiency and limit catches. B. promote efficiency in production but still lead to overfishing. C. limit catches but encourage production cost increases that are inefficient. D. have failed to limit catches or promote efficiency.