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:

Absolute Amount

A total figure or quantity without any adjustments, reductions, or modifications, representing a raw or unadjusted figure.

Tax Rate

The percentage at which an individual or corporation is taxed.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, reflecting the percentage of tax paid on any additional dollar earned.

Average Tax Rate

The ratio of the total amount of taxes paid to the total income of the taxpayer, indicating the burden of taxation.