A signalling equilibrium occurs where:
A)the cost of obtaining the signal is the same for both high and low risk drivers.
B)the cost of obtaining the signal is low for high risk drivers and high for low risk drivers.
C)the cost of obtaining the signal is high for high risk drivers and low for low risk drivers.
D)the cost of the signal is not too high for either type of driver.

Question

Quizplus · Accepted Answer

In a signalling equilibrium, high-risk drivers will choose to obtain the signal because the benefits outweigh the costs, and low-risk drivers will choose not to obtain the signal because the costs outweigh the benefits. Therefore, the cost of obtaining the signal must be high for high-risk drivers and low for low-risk drivers to ensure that only high-risk drivers obtain the signal.

A Signalling Equilibrium Occurs Where