Moral Hazard Occurs When

question 12

Multiple Choice

Moral hazard occurs when

• A) the principal monitors an agent.
• B) two people might trade with each other and one person has relevant information about some aspect of the product's quality that the other person lacks.
• C) an agent lacks an incentive to promote the best interests of the principal, and the principal cannot observe the actions of the agent.
• D) an agent monitors the principal.

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Definitions:

Anion

A particle with one or more units of negative charge, such as a chloride ion (Cl-) or hydroxide ion (OH-). Compare with cation.

Isotopes

Atoms of the same element that differ in the number of neutrons within their nuclei.

Ions

Atoms or molecules that have gained or lost one or more electrons, thus acquiring a charge.

Acid

A substance that is a hydrogen ion (proton) donor; acids unite with bases to form salts. Compare with base.