Scenario 22-1

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

Question

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

Quizplus · Accepted Answer

Belinda is the victim of an adverse selection problem because she is making a purchase based on incomplete or misleading information about the quality of the blouse, which Katie knows has had issues in the past.

Scenario 22-1 ​

Scenario 22-1