A bank advertises a very competitive loan interest rate. Explain what measures the bank can take to address adverse selection.
What will be an ideal response?
The advertisement will attract both high- and low-risk borrowers. The lender can collect information to distinguish the two, and offer a lower rate to the low-risk borrowers. Offering the same, average rate to the two types of borrowers would drive the low-risk borrowers to another lender.
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Net public debt is
A) the excess of annual tax revenues over annual government spending. B) the sum owed by the public to keep the Social Security system afloat. C) the portion of government debt held by private individuals and firms. D) the excess of annual government spending over annual tax revenues.
The health care system in the United Kingdom is often referred to as ________, under which the government owns most of the hospitals and employs most of the doctors
A) a single-payer system B) a universal health insurance system C) socialized medicine D) a private health care system
A price floor that is set below the equilibrium price
A) causes suppliers to lower their prices. B) is binding. C) is non-binding. D) creates a shortage.
If the government imposes a sin tax on alcohol and the demand for alcohol is inelastic, the tax will cause a:
A. large decrease in quantity demanded but will generate more revenue than it would if the demand were elastic. B. large decrease in quantity demanded but will generate less revenue than it would if the demand were elastic. C. small decrease in quantity demanded but will generate less revenue than it would if the demand were elastic. D. small decrease in quantity demanded but will generate more revenue than it would if the demand were elastic.