Moral Hazard Occurs When One Party to a Contract Changes

question 114

True/False

Moral hazard occurs when one party to a contract changes his behavior in response to that contract and thus passes on costs of that behavior to the other party.

---

Definitions:

Reportable Segments

Portions of a business that can be separated for analysis and reporting purposes, typically based on certain criteria like products, services, or geographic locations.

Revenues

The cumulative sum of funds a business accrues from selling products or offering services over a specified duration.

Major Customer

A customer that represents a significant portion of a company's revenue, which if lost, could materially affect the financial health of the business.