Which of the Following Describes a Moral Hazard Problem

question 162

Multiple Choice

Which of the following describes a moral hazard problem?

• A) a process by which individuals have substantial resources devoted to the exchange process and need to make a profit or they will be adversely affected
• B) a post-contractual problem that may result because participants to the exchange process have information that allows them to act in an opportunistic manner
• C) a process by which individual buyers or sellers with better information are more likely to participate in voluntary exchange
• D) a contractual problem that results because monopolies exist in all economies

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Definitions:

CVP Analysis

Cost-Volume-Profit Analysis; a management accounting tool that helps understand the relationship between costs, volume, and profit.

Inventory

Inventory consists of goods and materials held by a business for the purpose of resale or as part of the production process.

Contribution Margin

The selling price per unit minus the variable cost per unit, used to cover fixed costs and contribute to net profit.

Selling Price

The price for which a product or service is sold to the customer.