Consider the Following Two Situations

question 10

Multiple Choice

Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person's actions illustrates moral hazard?

• A)Both Irene's and Victor's
• B)Irene's but not Victor's
• C)Victor's but not Irene's
• D)Neither Victor's nor Irene's

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Definitions:

Budget Line

A graphical representation of all possible combinations of two goods or services that can be purchased with a given budget.

Absolute Value

The non-negative value of a number without regard to its sign; essentially, it is the distance of a number from zero on the number line.

Slope

The measure of the steepness or incline of a line, representing the rate at which variables change relative to each other, often used in contexts like graphing economic functions.

Budget Line

A graphical representation showing the combination of two goods that can be purchased with a fixed amount of income, given their prices.