1)For the following situation, do the following: first, describe whether it is a situation of moral hazard or of adverse selection. Then explain what inefficiency can arise from this situation and explain how the proposed solution reduces the inefficiency.

When you buy a second-hand car, you do not know whether it is a lemon or a plum, but the seller knows. A solution is for sellers to offer a warranty with the car that pays for repair costs.

2)There are many successful and well-regarded companies, such as Honda, FedEx, Amazon.com, and Whole Foods. What is each one's core competency? How might they lose their core competency, and what do they need to do to hold on to it?

1) In such a situation, where an individual buys a second-hand car without knowing its exact condition, but the seller knows and offers the buyer a warranty can be described as a moral hazard case.

It is a moral hazard because the car seller sells a vehicle that is not in perfect condition to an unknowing buyer and offers an insurance cover.

By selling a car that is not in good condition, the seller exposes himself or herself to more risks since they know the insurance company will cater for the repair costs.

The seller offers the insurance cover to ensure he or she does not incur the repair costs due to selling a car that is not in perfect condition, making this a case of moral hazard.

2)

The core competencies of the above-mentioned companies are:

Honda: The core competency of the company is that it diversified itself in every field of making the vehicles whether it be motorbikes or cars. The company produces a variety of products suitable for various market segments.

They might lose their competency if their competitors actually start to diversify their field of operations and widen the market segments.

In order to hold its competency, Honda should research on exploring the more market segments and widening the market by approaching the smaller to major segments of the vehicles.

FedEx: The core competency of the FedEx is that it has the dynamic supply chain management globally and it actually makes sure to empower its human resources.

They might lose their core competency if the competitors bring along any kind of human resources empowerment and that too strong in its nature.

FedEx should focus on strengthening the supply chain management by more new strategies which will give the empowerment to the employees globally and will make the industry dynamic.

Amazon: The core competency of this company is the creating of the largest online platform globally and doing the management of logistics and distribution.

They might lose their competency if they will mishandle the online platform for shopping and moreover if there will be any kind of mismanagement in its logistics.

The best way to hold their competency is to introduce the technology and other resources which can actually strengthen and fastens the logistics as well as an online shopping platform.

Wholefoods: The core competency of this company is that it actually provides organic products in food which are natural.

The competency might get loose if the competitors will also introduce and practice the same concept with some innovation which will be more beneficial to customers.

The hold on core competency can be done through maintaining the natural essence of the products and simultaneously bringing the innovation in the products from time to time.