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Business, 28.05.2020 00:59 mistiehaas

Use Akerlof's lemons model to explain why restaurants that cater to tourists are likely to serve low quality meals. Tourists will not return to this area, and they have no information about the relative quality of the food at various restaurants, but they can determine the relative price by looking at menus posted outside each restaurant. A. Before eating, consumers cannot determine the quality of the food; they can only compare relative prices and type of cuisine. Since tourists will not return, the restaurant owner has no incentive to prepare high quality meals to try to impress them. B. Before eating, consumers can determine the quality of the food, compare relative prices, and compare the type of cuisine. However, since tourists will not return, the restaurant owner has an incentive to reduce the quality to save money. C. Before eating, consumers cannot determine the quality of the food; they can only compare relative prices and type of cuisine. Since tourists will not return, the restaurant owner has an incentive to reduce the quality to save money. D. Before eating, consumers cannot determine the quality of the food; they can only compare relative prices and type of cuisine. Since tourists will not return, there is no benefit from reputational effects and thus no incentive to serve high quality meals.

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