The Difference Between Adverse Selection and Moral Hazard Is That

question 71

Multiple Choice

The difference between adverse selection and moral hazard is that

• A)moral hazard happens at the time parties enter into a transaction; adverse selection occurs after the transaction takes place.
• B)adverse selection happens at the time parties enter into a transaction; moral hazard occurs after the transaction takes place.
• C)moral hazard is the motive that is behind one party entering into a transaction with another party.Adverse selection refers to the other party being harmed by the transaction.
• D)moral hazard refers to the likelihood that a transaction will lead one party to be better off at the expense of the other party to the transaction.Adverse selection refers to the consequences of the transaction after it has occurred.

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Definitions:

Large Order

A request for a significantly large quantity of goods or services.

Postponement

A supply chain strategy that delays the final activities in the production process (such as assembly, packaging, or shipping) until the latest possible time to reduce inventory and increase customization.

Customization

The process of modifying goods or services to meet the needs or desires of specific customers.

Hewlett-Packard

A global information technology company known for its wide range of hardware and software products.