When a moral hazard problem exists for automobile driving, the marginal cost of driving:
A) is lowered, and the amount of driving done is raised above the efficient level.
B) is lowered, and the amount of driving done is lowered below the efficient level.
C) is raised, and the amount of driving done is raised above the efficient level.
D) is raised, and the amount of driving done is lowered below the efficient level.
E) is raised above the efficient level, but market forces keep the total amount of driving is kept at the efficient level.

Question

Quizplus · Accepted Answer

When a moral hazard problem exists for automobile driving, such as when drivers are insured against accidents, the marginal cost of driving is lowered because drivers do not bear the full cost of any damages they cause. As a result, the amount of driving done is raised above the efficient level.

When a Moral Hazard Problem Exists for Automobile Driving, the Marginal