Why might a seller find it advantageous to signal the quality of a product? How are guarantees and warranties a form of market signaling? A. In a market where buyers are uncertain of a product's quality, a firm that signals the quality of its product can charge a higher price. Since guarantees and warranties are more costly for low-quality producers than high-quality producers, only high-quality producers will offer them. B. In a market where buyers are uncertain of a product's quality, the only clear signal of quality is to offer a guarantee or warranty. Since guarantees and warranties are less costly for low-quality producers than high-quality producers, only low-quality producers will offer them. C. In a market where buyers are uncertain of a product's quality, a firm that signals the quality of its product can charge a higher price. Since guarantees and warranties are less costly for low-quality producers than high-quality producers, only low-quality producers will offer them. D. In a market where buyers are uncertain of a product's quality, the only clear signal of quality is to offer a guarantee or warranty. Since guarantees and warranties are more costly for low-quality producers than high-quality producers, only high-quality producers will offer them.

Question

Why might a seller find it advantageous to signal the quality of a​ product? How are guarantees and warranties a form of market​ signaling? A. In a market where buyers are uncertain of a​ product's quality, a firm that signals the quality of its product can charge a higher price. Since guarantees and warranties are more costly for​ low-quality producers than​ high-quality producers, only​ high-quality producers will offer them. B. In a market where buyers are uncertain of a​ product's quality, the only clear signal of quality is to offer a guarantee or warranty. Since guarantees and warranties are less costly for​ low-quality producers than​ high-quality producers, only​ low-quality producers will offer them. C. In a market where buyers are uncertain of a​ product's quality, a firm that signals the quality of its product can charge a higher price. Since guarantees and warranties are less costly for​ low-quality producers than​ high-quality producers, only​ low-quality producers will offer them. D. In a market where buyers are uncertain of a​ product's quality, the only clear signal of quality is to offer a guarantee or warranty. Since guarantees and warranties are more costly for​ low-quality producers than​ high-quality producers, only​ high-quality producers will offer them.

Bot GPT 3.5 · Answer

The correct answer is A. In a market where buyers are uncertain of a​ product's quality, a firm that signals the quality of its product can charge a higher price. Since guarantees and warranties are more costly for​ low-quality producers than​ high-quality producers, only​ high-quality producers will offer them. This is because a seller can use signals such as guarantee or warranty to convey to the buyers that their product is of high quality. This helps to reduce the uncertainty of the buyers and provides them with assurance. However, offering guarantees and warranties can be costly for low-quality producers, as they may have to bear the costs of repairing or replacing defective products. Therefore, only high-quality producers, who are confident in the quality of their products, are likely to offer such guarantees and warranties. As a result, buyers perceive these signals as an indication of quality, which allows the seller to charge a higher price.