What Is Moral Hazard

question 54

Multiple Choice

What is moral hazard?

• A)It refers to the private, self-interested actions that people pursue, which when taken collectively leads to a loss in economic surplus.
• B)It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.
• C)It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.
• D)It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.

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Definitions:

Goodwill

An intangible asset that arises when a business is acquired for more than the fair value of its net identifiable assets.

Taxable Income

The amount of income used to calculate how much tax an individual or a company owes to the government.

Consolidated Income

The total net income of a parent company and its subsidiaries, after accounting for the ownership interest of noncontrolling shareholders.