Adverse selection refers to the
A. possibility that the borrower may engage in riskier behavior after the loan is obtained.
B. use of statistical discrimination in making loans.
C. possession of information by one party in a financial transaction not known by the other party.
D. likelihood that a potential borrower may use the funds that he receives for unworthy, high risk projects.
Answer: D
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In the figure above, Lourdita faces a 0.5 probability of receiving $3,000 and a 0.5 probability of receiving $9,000. Her cost of bearing this risk is the distance from
A) A to F. B) A to D. C) B to E. D) C to E.
Studies and experience suggest that labor and capital are highly complementary inputs to the production of pipe organs
Indicate whether the statement is true or false
An indifference curve represents bundles of goods that a consumer
A) views as equally desirable. B) ranks from most preferred to least preferred. C) refers to any other bundle of goods. D) All of the above.
Once the state environmental protection agency devises its new policy to protect the environment, firms decide whether to remain in the state or move their operations to a neighboring state. In the language of game theory, this is an example of:
A) a cooperative game. B) a sequential game. C) a threat. D) the Prisoner's dilemma.