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.

Question

Quizplus · Accepted Answer

A problem involving hidden characteristics occurs when the buyer cannot distinguish between high-quality and low-quality goods due to the lack of information about the product's characteristics. This creates an information asymmetry problem, and the seller may take advantage of the buyer by selling low-quality goods at a high price.

The Buyer Runs a Risk of Being Sold a Good