Author Question: Imposing trade barriers does all of the following except A) lowers incomes. B) invites ... (Read 37 times)

penza · **on:** Jun 29, 2018

Imposing trade barriers does all of the following except

A) lowers incomes. B) invites retaliation from foreign governments.
C) lowers domestic prices. D) reduces economic efficiency.

Question 2

How do markets for loans use signaling and screening to cope with private information?

What will be an ideal response?

itsakadoozi · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

C

Answer to Question 2

Lenders in the loans market want to separate high-risk borrowers from low-risk borrowers so that they can charge high-risk borrowers a high interest rate and low-risk borrowers a low interest rate. They use signals and screens to help them do so. They screen borrowers by asking for information that helps them assess the riskiness of the loan and the borrower. If the borrower does not reveal the information requested, the lender has screened the borrower into the high-risk category. The information requested will provide signals about the borrower's riskiness. For instance, if a borrower has defaulted on debt in the past this fact signals that the borrower is a high-risk individual.