The Idea That Claims in One's Self-Interest Are Credible Only

question 99

Multiple Choice

The idea that claims in one's self-interest are credible only if they are supported by actions that would be too costly to take if the claims were untrue is known as the:

• A)pecking order hypothesis.
• B)credibility principle.
• C)lemons principle.
• D)signaling theory of debt.

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Definitions:

Market Failure

Market failure occurs when the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss.

Economic Efficiency

A situation in which resources are used in a way that maximizes the production of goods and services at the lowest cost.

Ideal Economic Efficiency

A situation in which resources are allocated in a way that maximizes the net benefit to society.

Market Failure

Refers to a situation where the allocation of goods and services by a free market is not efficient, often leading to negative externalities.