In the Case of an Insurance Policy,________ Occurs When the Existence

question 36

Multiple Choice

In the case of an insurance policy,________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff; ________ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most.

• A) moral hazard; insurance market discrimination
• B) moral hazard; insurance segregation
• C) moral hazard; adverse selection
• D) adverse selection; moral hazard

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Definitions:

Commercial Activity

Any type of business or transaction engaged in for the purpose of generating profit.

International Agreements

Treaties or accords between countries governing relationships, trade, and other international matters.

Executive Agreements

International agreements made by the executive branch of a government without legislative approval, often simpler than formal treaties.

Treaties

Formal agreements between countries that are legally binding and govern international relations and agreements.