Lacy Uses Undue Influence to Induce Mina to Sign a Contract

question 46

Multiple Choice

Lacy uses undue influence to induce Mina to sign a contract to invest her National Education Fund student loan money in Overseas Bank. Mina may

• A) avoid the contract.
• B) do nothing after Mina signs the contract.
• C) recover from National for a failure to monitor Mina's money.
• D) recover from Overseas for a failure to undo Lacy's influence.

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Definitions:

Moral Hazard

Post-contractual increases in risky or negative behavior. Examples are reduced incentive to exercise care once you purchase insurance and reduced incentives to work hard once you have been hired. Moral hazard is similar to adverse selection in that it is caused by information asymmetry; it differs in that it is caused by hidden actions rather than hidden types.

Taxi Driver

A person employed to drive a car or van, which transports passengers to their chosen destinations for a fee.

Piece-rate

A payment method where workers are paid a fixed rate for each unit of production completed, encouraging productivity by directly linking pay to output.

Moral Hazard

A situation where one party takes on excessive risk because the negative consequences of the risk will be borne by another party.