Explain how usury laws distort the market for funds. What is the most likely result if a usury law is passed and enforced?
A usury law sets a maximum interest rate which can be charged on loans. Similar to any other price ceiling, it will lead to a shortage (assuming that the maximum rate is below the market equilibrium rate); quantity demanded will exceed quantity supplied at the interest rate. The result will be economic inefficiency. In order to allocate the funds that are available, lenders will be tempted to employ non-price rationing methods. These methods may easily be interpreted as discrimination on the basis of race, gender, etc.
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The only goods you consume are pizza and soda. Both are normal goods. You consider pizza and soda to be substitutes. Which of the following will lead you to eat more pizza?
A) The price of a pizza falls. B) The price of a soda falls. C) The price of a soda rises. D) Both answers A and C are correct.
The Bureau of Labor Statistics has taken several steps to reduce the bias in the consumer price index. Which of the following is not one of the steps taken to reduce the bias?
A) conducting a point-of-purchase survey to track where consumers actually make their purchases B) using statistical methods to reduce the size of the quality bias C) updating the market basket every two years, rather than every 10 years D) incorporating substitutions by consumers when prices of specific products rise rapidly