Answer: A pooling equilibrium exists when all customers, regardless of their type, are offered the same product or service. In a pooling equilibrium, the market does not differentiate between different customer types.
Given the statement "A pooling equilibrium exists as long as the number of Type H customers in the market is relatively low," we can analyze its truthfulness:
If the number of Type H customers in the market is relatively low, it means that there are fewer customers of Type H compared to other types. In this scenario, it is more likely that the market will offer a single product or service that caters to the majority of customers, including non-Type H customers. Therefore, it is true that a pooling equilibrium is more likely to exist when the number of Type H customers is relatively low.
On the other hand, if the number of Type H customers in the market is relatively high, it means that there is a significant presence of Type H customers. In this case, the market might be inclined to offer specialized products or services that specifically cater to the needs and preferences of Type H customers. This would result in a segmentation or differentiation of the market, which contradicts the concept of a pooling equilibrium. Therefore, it is false to say that a pooling equilibrium exists when the number of Type H customers is relatively high.
To summarize:
- A pooling equilibrium is more likely to exist when the number of Type H customers in the market is relatively low. (True)
- A pooling equilibrium is less likely to exist when the number of Type H customers in the market is relatively high. (False)