We Can Say That a Contract Is Able to Prevent

question 47

Multiple Choice

We can say that a contract is able to prevent moral hazard when

• A) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-averse people.
• B) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-loving people.
• C) it shifts risk to risk-loving people.
• D) it eliminates production inefficiencies due to moral hazard and shifts risk to risk-averse people.

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Definitions:

Cost of Goods Sold

This accounting term refers to the direct costs attributable to the production of the goods sold by a company, including labor, material, and overhead costs.

Rising Prices

A situation in which the general level of prices for goods and services in an economy increases over a period, often referred to as inflation.

Inventory Method

A system used by businesses to keep track of the quantity, status, and location of goods that they hold.

Gross Profit

The financial metric calculated by subtracting the cost of goods sold from sales revenue, indicating the efficiency of a company in managing its production and labor costs.