Mary Jo Smith is willing to work for $3,200 per month.She asks the HR manager at Plain Truth Advertising for $4,000 per month.He was willing to pay only $3,700 per month,so he rejects her application and begins to search for a new employee again.This is an example of:
A)adverse selection.
B)value maximization.
C)bargaining failure.
D)agency problem.

Question

Quizplus · Accepted Answer

This scenario is an example of bargaining failure, as both parties were unable to come to an agreement on a wage that would suit both of them. Adverse selection refers to the problem of attracting low-quality employees, value maximization refers to the goal of maximizing profits, and the agency problem refers to the issue of conflicts of interest between managers and shareholders.

Mary Jo Smith Is Willing to Work for $3,200 Per