Moral Hazard Is an Important Concern of Insurance Arrangements Because

question 16

Multiple Choice

Moral hazard is an important concern of insurance arrangements because the existence of insurance

• A)provides increased incentives for risk taking.
• B)is a hindrance to efficient risk taking.
• C)causes the private cost of the insured activity to increase.
• D)creates an adverse selection problem but no moral hazard problem.

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Definitions:

Required Production

Required production is the quantity of goods a company needs to produce in a given period to meet customer demand and maintain inventory levels.

Direct Labor

Labor costs directly associated with the manufacture of products or provision of services, such as wages for assembly line workers.

Manufacturing Overhead

Manufacturing overhead includes all indirect costs associated with the production process, such as utilities, maintenance, and salaries of non-direct labor employees.

Ceramic Tile

A durable, hard flooring material made from clay that has been fired in a kiln, commonly used for floors, walls, and backsplashes.