Which of the following is an example of a moral hazard?
A)A student committing suicide after failing in an examination.
B)A housekeeper leaving a house unlocked after insuring it against burglary.
C)An exporter delivering faulty products after receiving a certain fraction of the total payment.
D)A person deriving utility from a commodity without paying for it.

Question

Quizplus · Accepted Answer

The housekeeper leaving the house unlocked after insuring it against burglary is an example of moral hazard because the housekeeper is protected from financial loss through insurance, but their behavior (leaving the house unlocked) is riskier because of this protection. This behavior increases the likelihood of a burglary occurring, which would result in financial loss for the insurance company.

The other options do not fit the definition of moral hazard. A student failing and committing suicide is a tragic outcome but not related to financial protection or behavior changes. The exporter delivering faulty products after receiving partial payment is an example of fraud, not moral hazard. A person deriving utility from a commodity without paying for it is an example of a negative externality or free rider problem, but not moral hazard.

Which of the Following Is an Example of a Moral