When an Individual Knows More About His or Her Own

question 45

Multiple Choice

When an individual knows more about his or her own actions than other people do,incentives are distorted,which causes:

• A)moral hazard.
• B)adverse selection.
• C)screening.
• D)signaling.

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Definitions:

Periodic Inventory System

An inventory system in which the inventory records are updated only after a physical count has been taken at periodic intervals, usually at the end of an accounting period.

Inventory Account

An account in the ledger that tracks the cost of goods a company has in stock that are available for sale.

Internal Control

Processes adopted by organizations to ensure accuracy and integrity in financial reporting, operational efficiency, and compliance with laws and regulations.

Financial Statements

Formal records that outline the financial activities and condition of a business, including the balance sheet, income statement, and cash flow statement.