Final answer:
Incorrectly, Statement I considers consumer's risk as rejection of good quality, and Statement II views producer's risk as acceptance of poor quality. In reality, consumer's risk is accepting a poor-quality lot, while producer's risk is rejecting a good-quality lot. Both reflect the challenges of imperfect information in markets.
Step-by-step explanation:
In the context of acceptance sampling, two types of risks are inherent: consumer's risk and producer's risk. Statement I is incorrect because a consumer's risk occurs when a consumer or customer accepts a lot that is, in fact, of poor quality. A consumer's risk is a scenario where defective products go undetected during the sampling process and are then sent to the market, potentially leading to dissatisfaction and harm to the consumer's trust and safety.
Statement II, on the other hand, is also incorrect because producer's risk is actually the risk that a good quality lot is rejected based on the sample's results. This can happen when the sample drawn from a batch of products that meets the quality standards shows defects purely by chance, causing a manufacturer to incur additional costs and potential loss of reputation.
Both producer's risk and consumer's risk highlight the challenges of categorizing and assessing risk, much like the difficulty insurance companies face when dealing with moral hazard and adverse selection due to imperfect information. These situations reflect the broader issues in markets where information asymmetry exists and affects decision-making and market efficiency.