Economics Assignment

Economics Assignment 1
Economics Assignment
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Economics Assignment 2
Question 1
Using the concept of externalities, the author statement means that the private parties
which could be regarded as the third parties incur some cost that they are not responsible for. In
other words, the private parties are getting the consequence of the debts contracts; they are
enduring these consequences yet they are very much unrelated with the cost since they lack
control over the factors that are responsible for creating the specific cost (Jensen, 2018, pp 24).
Therefore, the author is simply trying to imply that out of the research that has been done, third
parties (private) they are suffering a cost because of the economic transaction and in this case the
transaction is the debt contracts.
Question 2
Shared responsibility helps mitigate the negative externalities of a debt contract since as
a new home mortgage product is of advantage over debt mortgage. The economic benefits of the
shared responsibility mortgage may not be equated in the pricing of the private market because
of the externalities. Therefore, according to the author and the research done, the debt contracts
have a large negative externality. For instance, a case where there is foreclosure, the owner of the
house is forced to bear all the losses when the price of the houses goes down (Hacker and
O'Leary, 2012, pp18). Thus, a whole neighbourhood can be made well if the homeowner and the
lender come to terms on shared responsibility mortgage instead of the debt mortgage. Therefore,
the new mortgage should be promoted.
Question 3
Securitization is the process in which specific types of assets are pooled so that a
repackaging can be done to achieve interest-bearing securities (Parrott, 2017, pp 14). The