Agency is generally defined as a relationship between a principal and an agent. In such an agency relationship, the agent is authorized to act for and on behalf of the principal, who hires the agent to represent him/her. These relationships are consensual and can be formed by informal oral agreements or formal written contracts. The agency relationship exists only when the principal takes action to ask another individual to act on behalf of the principal.

What are the different types of authority an agent might have, and why is it important to identify the type of an agent's authority?