The Problem That Arises When a Party That Is Protected

question 159

Multiple Choice

The problem that arises when a party that is protected from risk behaves differently than if it were not protected from risk is

• A) moral hazard.
• B) diminishing returns.
• C) the principal-agent problem.
• D) adverse selection.
• E) market failure.

---

Definitions:

Dividend Payout Ratio

A financial ratio that measures the percentage of a company's net income that is distributed to shareholders in the form of dividends.

Capital Intensity Ratio

A measure of how much capital is required to produce one unit of output, often used to evaluate the business's capital efficiency.

Auto Manufacturing

The industry involved in the design, development, production, marketing, and sale of motor vehicles.

Software Development

The process of conceiving, specifying, designing, programming, documenting, testing, and bug fixing involved in creating and maintaining applications, frameworks, or other software components.