A Signalling Equilibrium Occurs Where

question 19

Multiple Choice

A signalling equilibrium occurs where:

• A)the cost of obtaining the signal is the same for both high and low risk drivers.
• B)the cost of obtaining the signal is low for high risk drivers and high for low risk drivers.
• C)the cost of obtaining the signal is high for high risk drivers and low for low risk drivers.
• D)the cost of the signal is not too high for either type of driver.

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Definitions:

Present Value

The present value of a sum of money or sequence of cash flows expected in the future, calculated using a certain rate of return.

Discounting

A financial process of determining the present value of a payment or a series of payments that will be made in the future.

Savings Account

A deposit account held at a financial institution that provides principal security and a modest interest rate.

Down Payment

An initial upfront portion of the total amount due, typically associated with the purchase of expensive items like cars or real estate.