When Does the Moral Hazard Problem Arise

question 55

Multiple Choice

When does the moral hazard problem arise

• A)when an agent performs a task on behalf of a principal
• B)when a principal performs a task on behalf of an agent
• C)when a moral person trusts an immoral person to perform a task for him
• D)when an immoral person bribes a moral person to perform a task for her

---

Definitions:

Corporate Default

A failure of a company to fulfill its financial obligations, such as missing a debt payment.

Lost Sales

Revenue that a company could have earned but didn't, due to stockouts, inadequate capacity, or other factors.

Debt/Equity Ratio

An indicator of how the financing of company assets is divided between shareholder equity and debt.

All-Equity Firm

A company that finances its operations without any debt, relying solely on shareholder equity for funding.