When Consumers Cannot Tell the Difference at the Time of Sale

question 125

Multiple Choice

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this

• A) the curse of advertising.
• B) the imperfect information problem.
• C) the brand name problem.
• D) an open-access resource.

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Definitions:

Marginal Revenue

The additional revenue generated from selling one more unit of a good or service.

Marginal Costs

The rise in overall expenses resulting from the production of an additional unit.

Total Variable Cost

The sum of expenses that vary directly with the level of output, rephrasing it as the aggregate of costs that fluctuates in tandem with production volume.

Short-Run Supply Curve

A graphical representation showing the quantity of goods that producers are willing and able to sell at different prices, over a short period.