A borrower who obtains funds from a lender to purchase additional inventory but uses the funds to finance a trip to Las Vegas for a weekend of gambling at the opening of a new casino is an example of:

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This scenario represents the moral hazard problem, which arises when a borrower has an incentive to take on higher risk because they are not fully responsible for the potential negative consequences. In this case, the borrower is using the funds for a personal enjoyment rather than their intended purpose of purchasing inventory. This shows a lack of responsibility on the borrower's part, making it more likely that they will default on the loan.

A Borrower Who Obtains Funds from a Lender to Purchase