Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 6

Suppose that, prior to the passage of the Truth in Lending Simplification Act and Regulation Z, the demand for consumer loans was given by Q pre _ TILSA = 12-100 P (in billions of dollars) and the supply of consumer loans by credit unions and other lending institutions was Q pre _ TILSAS =5+100 P (in billions of dollars). The TILSA now requires lenders to provide consumers with complete information about the rights and responsibilities of entering into a lending relationship with the institution, and as a result, the demand for loans has increased to (in billions of dollars). However, the TILSA also imposed "compliance costs" on lending institutions, and this reduced the supply of consumer loans to Q post _ TILSA = 3+100 P ( in billions of dollars). Based on this information, compare the equilibrium price and quantity of consumer loans before and after the Truth in Lending Simplification Act.