Which of the following is an application of the moral-hazard problem?
A)a person buying insurance after a cancer diagnosis.
B)an salesperson who is not paid on commission being rude to customers.
C)coffee hounds buying the menu item meant for lower-demand consumers.
D)only inexperienced workers applying for a managerial job advertised with a relatively low salary.

Question

Quizplus · Accepted Answer

The moral-hazard problem occurs when one party in a transaction has an incentive to take undue risks because the cost of those risks will be borne by another party. In option B, a salesperson who is not paid on commission may not have the incentive to be polite to customers because their income does not directly depend on sales, illustrating a moral-hazard problem where the employer bears the cost of the employee's lack of effort.

Which of the Following Is an Application of the Moral-Hazard