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:

Oligopolists

Firms or entities that are part of a market structure where a small number of companies or sellers dominate the supply of a particular product or service.

Prices

The amount of money or goods asked or given in exchange for goods or services.

Herfindahl-Hirschman Index

A measure used to determine the level of competition within an industry, calculated by summing the squares of the market shares of all firms in the industry.

Strategic Situations

Scenarios or contexts where the outcomes for participants depend significantly on the actions and decisions of all involved parties, often analyzed in game theory.