Sarah initially used her cell phone mostly to make important business calls.However,when she was informed that henceforth her phone bills would be reimbursed by her employer,she started using her cell phone to make frequent calls to her friends and relatives.This behavior is an example of ________.
A) moral hazard
B) a negative externality
C) the prisoners' dilemma
D) the free-rider problem

Question

Quizplus · Accepted Answer

Moral hazard is the tendency to take more risks or engage in more reckless behavior when the consequences of those actions are borne by others. In this case, Sarah's behavior changed once she no longer had to pay for her phone calls, as the cost was borne by her employer. This can be seen as an example of moral hazard.

Sarah Initially Used Her Cell Phone Mostly to Make Important