How might consumers for whom the borrowing constraint is binding benefit from access to relatively expensive forms of credit (e.g., pawn shops and "payday" loans)?
What will be an ideal response?
A binding borrowing constraint means that the marginal rate of substitution is greater than 1 + r. This means that such consumers might pay an interest rate greater than r in order to shift some consumption from the future to the present. So long as (1 + the interest rate they pay) does not exceed the MRS, the utility gained from the increase in current consumption is greater than the utility lost from reduced future consumption.
You might also like to view...
Compared to industrial market countries, developing countries usually have
a. exports consisting mostly of agricultural products and raw materials b. faster population growth c. higher unemployment d. higher rates of illiteracy e. All of the answers are correct
Compared to wages of professional athletes, the prices of automobiles in the United States have
A. fallen. B. risen. C. stayed the same. D. risen at the same rate as the CPI.
Economists include only final goods in measuring GDP for a particular year because if intermediate goods were
What will be an ideal response?
Which set of items in the list would shift an economy's production possibilities curve outward?
Use the list below to answer the following question: 1. Improvements in technology. 2. Increases in the supply (stock) of capital goods. 3. Purchases of expanding output. 4. Obtaining the optimal combination of goods, each at least-cost production. 5. Increases in the quantity and quality of natural resources. 6. Increases in the quantity and quality of human resources. A. 2, 5, and 6 only. B. 2, 4, 5, and 6 only. C. 1, 2, 5, and 6 only. D. 1, 3, and 4 only.