In Order to Reduce the Undesirable Effects of Moral Hazard,an

question 60

Multiple Choice

In order to reduce the undesirable effects of moral hazard,an insurance company can:

• A) introduce a deductible.
• B) classify clients into different types according to their history.
• C) reject the renewal of policies of those people with really bad records.
• D) All of the statements associated with this question are correct.

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Definitions:

Joint Cost

A cost that is incurred in the production of multiple goods or services where the cost cannot be attributed to individual products easily.

Physical Quantities

Measures of inventory that are based on physical count or volume, such as units, liters, or kilograms.

Investment Center

A division or unit within an organization that is responsible for generating its own revenue and controlling its costs, allowing it to be evaluated as a standalone entity for performance assessment.

Investment Turnover

A measure of a company's efficiency in using its assets to generate sales or revenue; calculated as sales divided by the average investment in assets.