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Author Question: How might consumers for whom the borrowing constraint is binding benefit from access to relatively ... (Read 89 times)

genevieve1028

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on: Jun 30, 2018
How might consumers for whom the borrowing constraint is binding benefit from access to relatively expensive forms of credit (e.g., pawn shops and payday loans)?
 
  What will be an ideal response?

Question 2

Key determinants of economic profit include ________.
 
  A) the revenue from selling goods and services
  B) the cost incurred in buying capital
  C) the cost of hiring labor
  D) all of the above
  E) none of the above


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beccamahon

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Reply #1 on: Jun 30, 2018
Answer to Question 1

A binding borrowing constraint means that the marginal rate of substitution is greater than 1 + r. This means that such consumers might pay an interest rate greater than r in order to shift some consumption from the future to the present. So long as (1 + the interest rate they pay) does not exceed the MRS, the utility gained from the increase in current consumption is greater than the utility lost from reduced future consumption.

Answer to Question 2

D


genevieve1028

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Reply #2 on: Jun 30, 2018
Thank you :)


beccamahon

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Reply #3 on: Jun 30, 2018
Happy to help you


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