The Lemons Problem: How Adverse Selection Influences Financial Structure
1) The “lemons problem” exists because of
A) transactions costs.
B) economies of scale.
C) rational expectations.
D) asymmetric information.
2) Because of the “lemons problem” the price a buyer of a used car pays is
A) equal to the price of a lemon.
B) less than the price of a lemon.
C) equal to the price of a peach.
D) between the price of a lemon and a peach.
3) Adverse selection is a problem associated with equity and debt contracts arising from
A) the lender”s relative lack of information about the borrower”s potential returns and risks of his investment activities.
B) the lender”s inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults.
C) the borrower”s lack of incentive to seek a loan for highly risky investments.
D) the lender”s inability to restrict the borrower from changing his behavior once given a loan.
4)
The Lemons Problem: How Adverse Selection Influences Financial Structure
1) The “lemons problem” exists because of
A) transactions costs.
B) economies of scale.
C) rational expectations.
D) asymmetric information.
2) Because of the “lemons problem” the price a buyer of a used car pays is
A) equal to the price of a lemon.
B) less than the price of a lemon.
C) equal to the price of a peach.
D) between the price of a lemon and a peach.
3) Adverse selection is a problem associated with equity and debt contracts arising from
A) the lender”s relative lack of information about the borrower”s potential returns and risks of his investment activities.
B) the lender”s inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults.
C) the borrower”s lack of incentive to seek a loan for highly risky investments.
D) the lender”s inability to restrict the borrower from changing his behavior once given a loan.
4) The ________ problem helps to explain why the private production and sale of information cannot eliminate ________.
A) free rider; adverse selection
B) free rider; moral hazard
C) principal agent; adverse selection
D) principal agent; moral hazard
A) free rider; adverse selection
B) free rider; moral hazard
C) principal agent; adverse selection
D) principal agent; moral hazard