Narrative 22-1
Katie owns a boutique that sells high-end women's clothing and accessories. Shana works part-time at the boutique and frequently is the only employee in this small store. Katie pays Shana a wage that is higher than the market wage for this type of job. When the store is not full of customers, Shana diligently works on displays and cleans to keep the store looking its best. Magda is a customer in the store who asks Shana's opinion on the quality of some jeans she is considering purchasing. Even though she's had several other customers return them due to flaws, Shana tells Magda the quality is great. Belinda is another customer who is returning a necklace without revealing that she lost a gem from it while wearing it.
-Refer to Narrative 22-1. Which of the ladies is causing a moral hazard problem?
A)Shana
B)Katie
C)Belinda
D)Magda

Question

Quizplus · Accepted Answer

Shana is causing a moral hazard problem by misrepresenting the quality of the jeans to Magda. She may be doing this to boost sales and please customers, but ultimately it's dishonest and could harm the boutique's reputation.

Narrative 22-1 Katie Owns a Boutique That Sells High-End Women's Clothing and Clothing