A street vendor sells a replica of a pair of designer shoes to a young woman who believes the shoes are authentic. The street vendor is engaging in
A)both moral hazard and adverse selection.
B)neither moral hazard nor adverse selection.
C)moral hazard, but not adverse selection.
D)adverse selection, but not moral hazard.

Question

Quizplus · Accepted Answer

The street vendor is engaging in adverse selection by selling a replica of a designer item as if it were authentic. This is because the young woman believes she is purchasing an authentic item, but she is not fully informed about the product. There is no moral hazard involved in this situation.

A Street Vendor Sells a Replica of a Pair of Designer