Scenario: Tom Wants to Buy a Used IPhone from an Online

question 59

Multiple Choice

Scenario: Tom wants to buy a used iPhone from an online exchange Web site. He expects 50 percent of the used phones to have some defect. He is willing to pay up to $80 for a phone without any defect and $0 for a defective phone. An owner of a good-quality iPhone is likely to sell his phone if he gets a price of $70.
-Refer to the scenario above.Which of the following problems is likely to occur in this market?

• A) The fallacy of composition
• B) Moral hazard
• C) Adverse selection
• D) The free-rider problem

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Definitions:

Foreign Nonprofit Corporation

A nonprofit organization that is formed under the laws of another country but operates within a different country.

Intrastate Business

Business operations confined within the borders of a single state.

State's Courts

Judicial bodies within a specific state that interpret and apply the law of that state.

Corporate Veil

A legal concept that separates the liability and actions of a corporation from its shareholders, protecting personal assets.