Asked by Kaitlyn Hearn on Jul 03, 2024
Verified
If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)
A) reverse wealth problem.
B) negative externality problem.
C) adverse selection problem.
D) moral hazard problem.
Moral Hazard
A situation where one party is more likely to take risks because they do not bear the full consequences of their actions.
Auto Insurance
A policy purchased by vehicle owners to mitigate costs associated with getting into an auto accident or other vehicular damage.
- Gain an understanding of the concept of moral hazard and detect its occurrence in various settings, including but not limited to, insurance and banking.
Verified Answer
MU
Michaela UsseryJul 06, 2024
Final Answer :
D
Explanation :
This situation would be an example of a moral hazard problem, where the presence of insurance leads an individual to take more risks or be less cautious than they would have been without it.
Learning Objectives
- Gain an understanding of the concept of moral hazard and detect its occurrence in various settings, including but not limited to, insurance and banking.