Joe's Computers builds and sells computers for the local retail market.Since Joe's business does not have the name recognition of some of the bigger computer retailers,Joe advertises a "One-Year Money Back Guarantee" to indicate to buyers that his product is of high quality.This guarantee is an example of
A) screening.
B) signaling.
C) the seller's curse.
D) the principal-agent problem.

Question

Quizplus · Accepted Answer

The "One-Year Money Back Guarantee" serves as a signaling mechanism to potential buyers, conveying information about the high quality of Joe's computers. Signaling is a method used by sellers to communicate favorable information about their products or services to buyers to overcome the information asymmetry problem. Therefore, option B is the correct choice.

Option A (screening) is incorrect because screening refers to the process of separating good quality products from bad quality ones.

Option C (the seller's curse) and D (the principal-agent problem) are also incorrect as they refer to different economic concepts that are not applicable in this context.

Joe's Computers Builds and Sells Computers for the Local Retail