The Buyer Runs a Risk of Being Sold a Good

question 326

Multiple Choice

The buyer runs a risk of being sold a good of low quality when there is

• A)a principal-agent problem.
• B)a moral-hazard problem.
• C)a problem involving hidden actions.
• D)a problem involving hidden characteristics.

---

Definitions:

Income Elasticity

A measure of how much the quantity demanded of a good changes in response to a change in consumers' income.

Demand Inelastic

When the quantity demanded of a good or service is relatively unchanged in response to price changes.

Directly Related

A situation where two variables move in the same direction, meaning if one increases, the other also increases and vice versa.

Price Inelastic

Describes a situation where the demand for a good is not significantly affected by changes in its price.