A Borrower Who Takes Out a Loan Usually Has Better

question 7

Multiple Choice

A borrower who takes out a loan usually has better information about the potential returns and risk of the investment projects he plans to undertake than does the lender. This inequality of information is called

• A)moral hazard.
• B)asymmetric information.
• C)noncollateralized risk.
• D)adverse selection.

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Definitions:

Necessity

A good or service that is essential for survival and basic well-being, such as food or shelter.

Price-Inelastic

Describes a situation where the demand for a product or service is relatively unaffected by changes in its price.

Water

A transparent, tasteless, odorless, and nearly colorless chemical substance that is the main constituent of Earth's hydrosphere and the fluids of most living organisms.

Price Elasticity

An indicator of the sensitivity of demand for a product to variations in its price, represented as a percentual change.