Ashley opened an all-you-can-eat buffet restaurant.The cost per-person was based upon what Ashley believed an average restaurant patron would consume.The restaurant began to lose money.Ashley concluded that her patrons had "above average" appetites,and were attracted to her restaurant because they could eat as much as they wanted while being charged an average price.A similar phenomenon exists in insurance markets.This problem is called

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The situation described in the scenario is an example of adverse selection, where one group (in this case, those with above-average appetites) is more likely to participate in a market offering a particular product or service, resulting in financial loss for the provider. Moral hazard refers to the tendency of people to take more risks or engage in more dangerous behavior when they are insured or protected from the consequences of their actions. Attitudinal hazard and fundamental risk are not relevant to the scenario.

Ashley Opened an All-You-Can-Eat Buffet Restaurant