Ten families in a block of flats share a large rubbish bin. The bin is emptied every Friday by the city council, but it is often overfull by Thursday.

a)Is this an example of the tragedy of commons? Explain.

b)How would you solve the problem? Explain how your solution may work.

CD Finance intends to issue bonds to finance its microlending operations. It has commissioned Far-East Credit (a credit assessment company in China) to assess its credit and obtained an AA+ rating.

a)Use the concept of information asymmetry to explain why CD Finance would want to obtain a credit rating?

b)Should CD Finance or potential bond investors commission the credit rating service? Explain.

c) If CD Finance issues more bonds over time, should its ratings be adjusted? Explain.