To Say That a Change in Taste Causes Prices to Rise

question 47

Multiple Choice

To say that a change in taste causes prices to rise is to claim that

• A)transfer prices are a more accurate gauge of economic activity than market prices.
• B)prices are a signal.
• C)the economy has full information.
• D)prices would not change if people did not know the exact reason for the price change.
• E)price changes cannot be predicted.

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Definitions:

Adverse Selection

A situation in which one party in a transaction has more information than the other, often leading to an unfavorable selection process.

Screening

The process of evaluating or testing something or someone to determine if certain criteria or standards are met, often used for selection purposes.

Signaling

The process by which one party conveys some meaningful information about itself to another party, often seen in contexts like job markets and education.

Risk-Averse

A description of an investor or decision-maker who prefers to avoid risks, favoring safer options over potentially higher but more uncertain returns.