Moral Hazard Is

question 126

Multiple Choice

Moral hazard is

• A) the tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party.
• B) when one of the parties to an agreement has an incentive after the agreement is made to act in a manner that brings additional benefits to himself or herself at the expense of the other party.
• C) a situation in which only bad quality items are bought and sold.
• D) an action taken outside a market that conveys information that can be used by that market.

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Definitions:

Earnings Differential

The difference in wages or income between two groups due to various factors such as education, experience, or gender.

Marginal Productivity

The additional output that results from using one more unit of a factor of production, holding other factors constant.

Official Government Definition

A formal and authoritative explanation or description of a term or policy provided by a governmental body.

Biological Needs

Fundamental requirements that sustain the life of an organism, such as food, water, and shelter.