Your friend works at a coffee shop on campus and regularly gives away free coffee to you and your friends when you visit.This is an example of
A) a moral hazard problem.
B) adverse selection.
C) behavioral economics.
D) signaling.

Question

Quizplus · Accepted Answer

This is an example of a moral hazard problem because your friend has an incentive to give away free coffee since they are not personally bearing the cost. Your friend may also be taking advantage of their position to give away more coffee than they should, which could hurt the profitability of the coffee shop.

Your Friend Works at a Coffee Shop on Campus and Regularly