1088EconomicsMedium
Which of the following must be true about a signal that is used to reveal private information in order for the signal to be effective?
AIt must be applied to an inexpensive product
BIt must be costly to the signaling party but less costly to the party with higher-quality product
CIt must be free to the signaling party
DIt must be “as seen on TV”
Correct answer
B. It must be costly to the signaling party but less costly to the party with higher-quality product
Explanation
The correct answer is It must be costly to the signaling party but less costly to the party with higher-quality product.