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.

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Definitions:

Traditional Authority

refers to a form of leadership in which the power of rulers is rooted in customs, traditions, and societal norms, often passed down through generations within families or clans.

Bureaucracy

An organizational structure characterized by standardized procedure, hierarchy of authority, and a clear division of labor, often within governmental agencies.

Capitalism

A financial system in which commerce, business, and resources are primarily or wholly owned and managed by private individuals for monetary gain.

Socialism

A political and economic theory advocating for the means of production, distribution, and exchange to be owned or regulated by the community as a whole.