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Question $8$ of $20$

Your county requires that contractors build new homes in accordance with the National Electric Code, a standard for the safe installation of electrical wiring, to ensure safety. Under this solution to the problem of adverse selection of sellers:

the government outlaws low$-$quality electrical installations.

a third$-$party verifier aggregates the experiences of past customers.

contractors undertake a costly signal of quality.

a social norm of honesty incentivizes contractors to build high$-$quality homes.