The Moral Hazard Problem Created When Consumers Acquire Health Insurance

question 159

Multiple Choice

The moral hazard problem created when consumers acquire health insurance leads them to

• A) take more care of their health.
• B) consume more health care services.
• C) seek less care from their physicians.
• D) exercise more and eat healthier food.

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Definitions:

Common Resource

A natural or man-made resource where one user's consumption reduces or diminishes the utility of that resource for others, and where it is difficult to exclude anyone from using the resource.

Rival

Refers to a competitor within the same market that offers similar products or services.

Nonexcludable

A nonexcludable good or service is one where it is impossible, or highly costly, to prevent someone from benefiting from it, regardless of whether they have contributed towards it, such as public parks or national defense.

Pigouvian Tax

A tax imposed on any market activity that generates negative externalities (costs not borne by the party causing them) to correct the market outcome.