Author Question: Market signals are (Read 44 times)

lilldybug07 · **on:** Apr 19, 2019

Question 1

In the area of market signaling, education is a strong signal in the job market because

◦ it tells employers that you have gained skills that will be useful in the work place.
◦ education is costly to obtain.
◦ education is less costly to obtain for highly productive individuals who are also likely to be highly productive in the work place.
◦ firms can easily verify your level of education.

Question 2

Market signals are

◦ actions taken by buyers and sellers to communicate quality in the presence of perfect information.
◦ only strong if obtaining the signal is more costly for individuals with valued traits than for those with non-valued traits.
◦ used to differentiate those who will drive equally carefully whether or not they have auto insurance from those who drive less carefully when they have insurance.
◦ used to distinguish between high and low quality and help correct the adverse selection problem.

juiceman1987 · **Reply #1 on:** Apr 19, 2019

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