Which of the Following Are Examples of the Moral Hazard

question 6

Multiple Choice

Which of the following are examples of the moral hazard problem?
i. the employment relationship between a worker and an employer
ii. an insured homeowner who buys too many fire extinguishers
iii. homeowners who choose to live in a high flood risk area when the government bears the cost of disaster relief

• A) (1) any
• B) (i) and (ii)
• C) (i) and (iii)
• D) (ii) and (iii)

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Definitions:

Line of Credit

A flexible loan from a bank or financial institution, where a borrower can access funds up to a specified limit at any time.

Lockbox System

A service provided by banks to process payments quickly by allowing companies to have their customers send payments to a special post office box.

Disbursement Float

The time lag between when a payment is issued by a payer and when the funds are actually withdrawn from the payer's account.

Receivable Accounts

Balances of money due to a company for goods or services provided that have not yet been paid by customers.