Collateral Requirements Lessen the Consequences of ________ Because the Collateral

question 103

Multiple Choice

Collateral requirements lessen the consequences of ________ because the collateral reduces the lender's losses in the case of a loan default and it reduces ________ because the borrower has more to lose from a default.

• A)adverse selection;moral hazard
• B)moral hazard;adverse selection
• C)adverse selection;diversification
• D)diversification;moral hazard

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Definitions:

Income Elasticity

A measure of how much the demand for a good is affected by changes in consumers' income.

Excise Tax

A tax levied on specific goods or services, such as tobacco or gasoline, typically imposed at the manufacturing or retail level.

Consumer Surplus

The separation between the theoretical price consumers are willing to pay for a good or service and the practical price they pay.

Point Price Elasticity

A measure of how the quantity demanded of a good responds to a change in the price of that good, calculated at a specific point on the demand curve.