When Sellers Have More Information About Hidden Characteristics of a Good

question 65

Multiple Choice

When sellers have more information about hidden characteristics of a good than buyers have, more low-quality units are likely to be sold than high-quality units.This is

• A)the law of diminishing marginal returns
• B)the law of natural selection
• C)the winner's curse
• D)the lemons problem
• E)the problem of common pools

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Definitions:

Equity Bond

An investment instrument that combines features of both equity and debt, often structured to convert to equity under certain conditions.

Income Bond

A bond that pays interest to its holders only if the issuing company has earned enough profits to cover the interest payments.

Business Law

The body of law that governs business and commercial transactions, including contracts, property, and liability.

Undisclosed Principal

A principal whose identity is not revealed by the agent to the third party during a transaction, creating legal implications concerning the agent's liability.