Explain how usury laws can distort the market for funds. What is the most likely result if a usury law is passed and enforced?
What will be an ideal response?
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 nonprice rationing methods. These methods may easily be interpreted as discrimination on the basis of race, gender, etc.
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Why does even a free market economy need some government intervention?
a. to provide for things that the marketplace does not address b. to ensure that the government has the freedom to tax as necessary c. to make sure that the government can fulfill its needs for military personnel d. so that the government has some control over factor resources
Specialization and exchange develop under conditions of
A) massive ignorance. B) a total conflict of interests. C) coercion and exploitation. D) none of the above.