Typically, Borrowers Have Superior Information Relative to Lenders About the Potential

question 105

Multiple Choice

Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called ________, and it creates the ________ problem.

• A) asymmetric information; risk sharing
• B) asymmetric information; adverse selection
• C) adverse selection; risk sharing
• D) moral hazard; adverse selection

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Definitions:

Price Ceiling

A legally established maximum price that can be charged for a good or service.

Deadweight Loss

The reduction in economic productivity that takes place when a good or service fails to achieve or cannot achieve its balance point.

Equilibrium Price

The rate at which the amount of products offered matches the amount of products consumers desire in the marketplace.

Demand Functions

Mathematical formulas representing the relationship between the quantity demanded of a good or service and its price, along with other factors like income and prices of related goods.