An example of moral hazard is
A) a situation where high-quality loan applicants drive low-quality loan applicants out of the market for bank loans.
B) a situation where equally qualified men and women do not earn the same wages in the same occupation.
C) a situation where individuals are not willing to pay top dollar for a used car because they assume it is a lemon.
D) a situation where a person purchases life insurance and then lives recklessly.

Question

Quizplus · Accepted Answer

Moral hazard refers to a situation where one party takes risks because they know that they will not bear the full cost of those risks. In this case, the person purchasing life insurance and then living recklessly is exhibiting moral hazard because they are taking risks that they otherwise might not take if they did not have insurance. They know that if something happens to them, the insurance company will bear the cost, not them.

An Example of Moral Hazard Is