Signaling:
A)is a method of solving moral hazard problems.
B)benefits the sellers of low quality goods.
C)involves a pure transfer of wealth from employers to employees.
D)is a method of solving an adverse selection problem.

Question

Quizplus · Accepted Answer

Signaling is a method of solving adverse selection problems, where one party has more information than the other. This occurs when an employer cannot distinguish between high and low quality employees, but high quality employees can signal their quality to the employer through their education, experience, or other factors. This helps to reduce information asymmetry and improve the efficiency of matching employers with employees.