Fact Pattern 28-1 Ann Starts Up Bowls Bistro to Sell

question 30

Multiple Choice

Fact Pattern 28-1 Ann starts up Bowls Bistro to sell soups and salads. Ann leases space in an office building owned by Carly. The lease requires a base rent of $1,250, plus 10 percent of Bowls Bistro's profits, each month. The term is two years. Ann hires Demi to take and fill customers' orders at an hourly wage of $15.00, plus tips.
Refer to Fact Pattern 28-1. Ann and Demi are

• A) not partners, because Demi does not have an ownership interest or management rights in Bowls Bistro.
• B) not partners, because the pay includes an hourly wage.
• C) not partners, because the pay includes only 10 percent of the profits.
• D) partners in a partnership.

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Definitions:

Warranties

Guarantees issued to the purchaser of a product by its manufacturer or seller, promising repair or replacement within a certain period if necessary.

Adverse Selection

A situation where there is an imbalance in information that results in high-risk parties being more likely to engage in transactions than low-risk parties, often observed in insurance markets.

Good Quality

The degree to which a product or service meets or exceeds customer expectations.

Moral Hazard

A situation where one party engages in risky behavior knowing that it is protected against the consequences, often due to asymmetric information.