A Lender Faces A(n) ________ Problem If Borrowers with a Greater

question 44

Multiple Choice

A lender faces a(n) ________ problem if borrowers with a greater chance of defaulting on their loans get loans from the lender.

• A) adverse selection
• B) moral hazard
• C) external cost
• D) free‐rider

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Definitions:

Short Run

A period in which at least one input is fixed, limiting the capacity for a firm or economy to adjust to changes in demand or supply.

Produce

To create, manufacture, or grow goods and commodities, especially in the context of agriculture and manufacturing.

Variable Costs

Costs that change in proportion to the level of production or business activity.

Fixed Costs

Costs that do not vary with the level of production or output and are incurred even if the business is producing nothing.