Question

In order to reduce the possibility of adverse selection, banks should raise the interest rates charged on loans.

True

False

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Question 244 pts

When all the costs and benefits of a transaction are borne by the participants of that transaction, _____.

the private costs and social costs are identical

the free rider problem arises

positive externalities exist

the market outcome will be inefficient

negative externalities exist

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Question 254 pts

Why are cows and chickens less prone to becoming extinct?

They are usually consumed in huge numbers

They are a part of common resources

They are mainly privately owned

They are not used for commercial purposes

Poaching these animals for their meat is banned by the government

Answer 1

Question 1) option B) false

If bank raise interest rates, then good & genuine honest buyers withdraw themselves from the market , & mainly risky & less genuine participants remain, thus further complicating the adverse selection problem.

Q2) option a)

since no third party is involved in the transaction , so no case of externality arises, hence market outcome should be efficient.

Thus options c,d,e are wrong.

Also no free riding bcoz all participants are bearing cost

Thus private & social costs are same

Q3) option a)

Chickens don’t become extinct precisely becoz they are so widely consumed.

So they are raised in a huge number on farms.to ensure to have a never-ending supply of chickens by domesticating them and farming them, and thereby producing them in a large quantity.

Hence chicken is one of the most consumed meats in the world, there’s a very strong financial incentive to ensure that there are lots and lots of chicken.

Also being a relatively cheap form of livestock, in terms of care and feeding, so chicken is really popular and not hard to keep fed, so there’s a lot of incentive to make sure there’s a steady population of them .