How does the use of collateral and net worth help reduce the problem of adverse selection?
What will be an ideal response?
To make it more costly for firms to take advantage of their asymmetric information, lenders often require borrowers to pledge some of their assets as collateral, which the lender claims if the borrower defaults. When the firm's net worth is high, the firm's managers have more to lose by using borrowed money for high-risk investments.
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Shaniq can spend the next hour studying for a finance test, hiking along the Oregon coast, watching reruns of Lost on television, or napping
If she decides to study, what is the opportunity cost of her choice: hiking, watching television, or napping?
An individual who suffers from money illusion will
A) feel that a doubling of prices and income improves his economic position. B) concentrate on relative prices. C) never be fooled by the impact of price changes on the purchasing power of income. D) try to use counterfeit money.
The _____ is both a forum where farmers decide what their dues will purchase, and an organization that informally coerces payments from them
a. beekeeper's cooperative b. government cooperative c. beekeeper's association d. farmer's association
From a consumer's viewpoint, which of the following policies would be least desirable?
A. Free trade. B. Quotas on imported goods. C. No trade. D. Tariffs on imported goods.