Moral Hazard Occurs When

question 8

Multiple Choice

Moral hazard occurs when:

• A)people with the highest risk are the most likely ones to buy insurance.
• B)insurance reduces a person's incentives to avoid or prevent certain risky events.
• C)the government refuses to provide social insurance.
• D)risk is spread across markets and time by speculators.
• E)none of the above.

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Definitions:

Choice Set

The collection of all possible options available to a consumer when making a decision.

Price Decreases

A reduction in the selling price of goods or services.

Marginal Utility

The extra gratification or benefit received from using an additional unit of a product or service.

Video Game Rental

A service that allows consumers to borrow video games for a limited time period before returning them.