Scenario: Pat works in a factory that produces jams, jellies, and marmalades. His job is to check whether each pack of marmalade is sealed before it is dispatched for sale. Several other workers in the factory do the same job. Therefore, it is not possible for the manager of the factory to keep track of the number of packs each worker actually inspects.
-Refer to the scenario above.Which of the following problems is most likely to arise in this case?
A) Adverse selection
B) Moral hazard
C) The tragedy of the commons
D) The free-rider problem

Question

Quizplus · Accepted Answer

Moral hazard is likely to arise because the manager cannot observe how many packs each worker inspects, creating a situation where workers might not perform their duties diligently, knowing their individual effort is not being monitored.

Scenario: Pat Works in a Factory That Produces Jams, Jellies