Which of the Following Would Be an Example of a Moral

question 191

Multiple Choice

Which of the following would be an example of a moral hazard problem?

• A) a person in poor health who purchases life insurance
• B) a person who is taxed on the purchase of a carton of cigarettes
• C) a person who purchases auto insurance and then drives more recklessly
• D) a person who receives a subsidy from the Federal government to insulate a home

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Definitions:

Downward Sloping

A description of a curve or line that shows a decrease in one variable as another variable increases, commonly seen in demand curves.

Demand Curves

Graphical representations showing the relationship between the price of a good and the quantity demanded by consumers.

Perfect Competition

Perfect Competition is a market structure characterized by a large number of small firms, identical products sold by all firms, no barriers to enter or exit the market, and perfect knowledge of prices and technology.

Perfect Competitor

Describes a market scenario where numerous small firms compete against each other, and no single firm can influence the market price of goods and services.