When you hire a company to paint your house,you cannot be sure of the quality of paint that was used.This situation is an example of
A) moral hazard.
B) the adverse selection problem.
C) the market for lemons.
D) the principal-agent problem.

Question

Quizplus · Accepted Answer

The principal-agent problem occurs when one party (the principal) hires another party (the agent) to perform a task on their behalf, but the agent's interests may not align with those of the principal. In this case, the homeowner (principal) cannot be sure of the paint quality used by the painting company (agent), which may lead to the agent choosing a lower quality to save costs, potentially against the homeowner's interests.

When You Hire a Company to Paint Your House,you Cannot