If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n):
A) Reverse wealth problem
B) Negative externality problem
C) Adverse selection problem
D) Moral hazard problem

Question

Quizplus · Accepted Answer

The situation described is an example of moral hazard, which occurs when a person takes more risks or acts less responsibly because they are protected by insurance. The individual may think that any costs from an accident will be covered by their insurance, so they are less careful while driving. This increases the likelihood of accidents and raises costs for the insurance company.

If a Person Drives with Less Care After Purchasing Auto