The Moral-Hazard Problem Occurs When

question 24

Multiple Choice

The moral-hazard problem occurs when:

• A) a consumer of insurance changes his or her behavior in such a way as to decrease the probability of a payoff.
• B) a consumer of insurance changes his or her behavior in such a way as to increase the probability of a payoff.
• C) insurance companies change their behaviors in such a way as to increase the probabilities of a payoff.
• D) insurance companies change their behaviors in such a way as to decrease the probabilities of a payoff.
• E) none of the above.

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Definitions:

Sales Differential

Sales differential is the difference in sales volume between a company’s actual sales and a predetermined benchmark, such as past sales performance or market expectations.

Core Value

Fundamental beliefs or principles that guide an organization's actions and decision-making.

IBM

International Business Machines Corporation, a global technology company known for its computer hardware, software, and IT services.

Planning Gap

The difference between future desired performance and the projection of future performance, if current operations continue, often leading to the development of strategies to bridge the gap.