Figure 212 Shows the Benefit Functions for Low-Ability Workers and High-Ability

question 54

Multiple Choice

Figure 21.2 shows the benefit functions for low-ability workers and high-ability workers (A and B) ,along with one indifference curve for each worker type (C and D) .The employer cannot observe worker type directly but has created two positions,E and F,as a screening mechanism.The equilibrium shown here is:

• A) a separating equilibrium.
• B) a pooling equilibrium.
• C) a market unraveling equilibrium.
• D) an example of adverse selection.

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Definitions:

Equilibrium Price

The market price at which the quantity of goods supplied is equal to the quantity of goods demanded.

Bundled Price

A pricing strategy where multiple products or services are sold together at a single price point.