JCPenney guarantees to refund a customer's money if the customer returns poorly made clothing.This guarantee is an example of
A) the adverse selection problem.
B) the moral hazard problem.
C) the cost of risk.
D) signaling.
E) a lemon problem.

Question

Quizplus · Accepted Answer

JCPenney's guarantee to refund a customer's money if the customer returns poorly made clothing is an example of signaling. JCPenney is signaling to their customers that they stand behind the quality of their clothing by offering a guarantee. This can attract customers who value quality and are willing to pay more for it, while deterring customers who are only looking for the cheapest option.

JCPenney Guarantees to Refund a Customer's Money If the Customer