Fred was suffering from a nasal tissue blockage that could be corrected either through an operation or with medical treatment for about two months.Fred's doctor clearly told him that the condition was not acute and he did not need surgery.Fred,however,insisted on the surgical removal of the blockage,being aware that his medical insurance would cover the entire cost of this surgery.The situation described here can be associated with which of the following problems?
A)Price dispersion
B)Moral hazard
C)Lemons problem
D)Prisoner's dilemma

Question

Quizplus · Accepted Answer

The situation described is an example of moral hazard, where Fred is more willing to take risks (undergo surgery) because his medical insurance will cover the cost. He may not have made the same decision if he had to pay for the surgery himself.

Fred Was Suffering from a Nasal Tissue Blockage That Could