Question

For each of the following purchases, say whether you would expect the degree of imperfect information to be relatively high or relatively low:

a. Buying apples at a roadside stand

b. Buying dinner at the neighborhood restaurant around the corner

c. Buying a used laptop computer at a garage sale

d. Ordering flowers over the internet for your friend in a different city

Short answer

a. Low

b. Low

c. High

d. High

Step-by-step solution

Step1. Introduction

When a buyer or seller, or both, is unsure about the quality of the goods or service they are purchasing or selling, they are in a position of imperfect information.

Step2. Explanation(Part a)

Relatively low because the apples being purchased may be seen.

Step 3. Explanation(Part b)

(b) Relatively low, as it is in the immediate vicinity, as one must have heard and/or observed.

Step 4. Explanation(Part c)

(c) Relatively high because it is used and available at the garage, and it is impossible to predict whether it will last a long time or not.

Step 5. Explanation(Part d)

(d) Relatively high because the flowers are ordered over the internet and hence cannot be seen or handled.