Moral Hazard Is a Problem That Arises

question 65

Multiple Choice

Moral hazard is a problem that arises:

• A) before the parties have entered into an agreement.
• B) after the parties have voluntarily entered into an agreement.
• C) either before or after the parties have entered into an agreement.
• D) rarely in any market.

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Definitions:

Society's Viewpoint

The collective perceptions, attitudes, and values of a community or society regarding various issues.

Marginal Revenue Product (MRP)

The change in a firm’s total revenue when it employs 1 additional unit of a resource (the quantity of all other resources employed remaining constant); equal to the change in total revenue divided by the change in the quantity of the resource employed.

Land

In addition to the part of the earth’s surface not covered by water, this term refers to any and all natural resources (“free gifts of nature”) that are used to produce goods and services. Thus, it includes the oceans, sunshine, coal deposits, forests, the electromagnetic spectrum, and fisheries. Note that land is one of the four economic resources.

Demand Curve

A curve that illustrates the demand for a product by showing how each possible price (on the vertical axis) is associated with a specific quantity demanded (on the horizontal axis).