Question

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.

Answer 1

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.

Step-by-step explanation:

In the given scenario tourists are most likely to visit a shop only once for a meal. Restaurants can serve low quality meals and put the same price as those that have high quality meals.

The tourist has no way to guage the quality before consuming, so they cannot differentiate based on quality.

The tendency is that restaurants will have a incentive to reduce quality in order to make more profit.

Serving high quality meals will be counterproductive because tourists will not adequately compensate the owner for his high quality food.