Mandla, who knew nothing about construction, paid Shaun to build an extension on his house. Two years later, a wall of the new extension crumbled because Shaun used poor quality materials. This is an example of

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Quizplus · Accepted Answer

This is an example of moral hazard, as Shaun had no incentive to use high-quality materials as Mandla did not have the knowledge or the ability to monitor his work. This is different from adverse selection, which occurs when one party has more information than the other before a transaction takes place. Screening and signalling are both methods used by parties to convey information to each other before a transaction, and do not apply to this scenario.

Mandla, Who Knew Nothing About Construction, Paid Shaun to Build