A seller's signal to potential buyers can work well for the seller only when it is
A)focused on reinforcing the idea that there are lemons for sale in the market.
B)focused on reinforcing the idea that there are no lemons for sale in the market.
C)substantially costlier for sellers of high-quality products to send the signal than for sellers of low-quality goods to do so.
D)substantially costlier for sellers of low-quality products to send the signal than for sellers of high-quality goods to do so.

Question

Quizplus · Accepted Answer

A seller's signal to potential buyers is most effective when it is costlier for sellers of low-quality products to send the signal than for sellers of high-quality goods to do so. This is because it serves as a credible signal of quality: high-quality sellers are willing to pay the higher cost of signaling, while low-quality sellers are not. This helps to reduce the information asymmetry between buyers and sellers, and makes it easier for buyers to identify high-quality products.

A Seller's Signal to Potential Buyers Can Work Well for the Seller