You Are Likely to Think That the Relative Price of Your

question 43

Multiple Choice

You are likely to think that the relative price of your good has declined and you should decrease your output if

• A)you expected inflation of 10% and the price of your good rose 7%.
• B)you expected inflation of 10% and the price of your good rose 10%.
• C)you expected inflation of 10% and the price of your good rose 13%.
• D)you expected inflation of 0% and the price of your good rose 10%.

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Definitions:

Moral Hazard

A situation where one party is more likely to take risks because the consequences of their actions are partly borne by others.

Straight Salary

A fixed amount of pay given to an employee, not dependent on the hours worked or performance.

Over Insure

The condition of having insurance coverage that exceeds the value of the insured item or risk, leading to unnecessary higher premium costs.

Deductible

A sum specified in an insurance policy that the insured individual must pay before being compensated for a claim; deductibles reduce moral hazard.