Mark works as a business development officer for a leading electronics company.His main task is to meet potential clients at their offices and set up business deals with them.Mark earns a fixed salary every month irrespective of the number of clients approached and deals made.As his boss does not cross-check the number of clients he meets in a day,Mark often does not meet all the clients that he is supposed to.His behavior is an example of ________.
A) adverse selection
B) moral hazard
C) a positive externality
D) a pecuniary externality

Question

Quizplus · Accepted Answer

Mark's behavior of not meeting all the clients and still receiving the fixed salary is an example of moral hazard. Moral hazard is a situation where one party takes undue risks because another party bears the cost of those risks, and in this case, Mark is not taking the risk of losing clients because he still receives his fixed salary regardless of his performance.

Mark Works as a Business Development Officer for a Leading