Flexible-Price Policies Are Most Common in the Channels, in Direct

question 113

True/False

Flexible-price policies are most common in the channels, in direct sales to business customers, and for expensive shopping products because sales reps may need to make adjustments for market conditions.

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Definitions:

Risk Aversion

A preference for avoiding risk, where individuals or organizations opt for lower-risk options even when higher risks may offer greater potential rewards.

Adverse Selection

Refers to the fact that “bad types” are likely to be selected in transactions where one party is better informed than the other. Examples include higher risk individuals being more likely to purchase insurance, more low-quality cars (lemons) being offered for sale, or lazy workers being more likely to accept job offers. Adverse selection is a precontractual problem that arises from hidden information about risks, quality, or character.

Insurance

A financial product offering protection against the potential financial loss or liability resulting from specific events or circumstances, in exchange for a premium payment.

Adverse Selection

A situation in markets where buyers or sellers have information that other participants do not, leading to an unfair advantage or market inefficiency.