Moral Hazard Is

question 9

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) absent after a person who dislikes risk buys insurance against the risk.
• E) an action taken outside a market that conveys information that can be used by that market.

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Definitions:

Economic Profit

The divergence between complete income and total liabilities, considering both concrete and theoretical expenses.

Economic Losses

The decrease in financial value or resources typically due to business activities or adverse economic conditions.

Human Capital

The collective skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.

Investment Rates

The percentage of an asset's value that is being invested or the rate at which capital is being used to generate economic activity.