Which scenario best illustrates the concept of moral hazard?

Multiple choice question for Asymmetric Information. Select an option, then review the explanation below.

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Josephine opts out of purchasing health insurance due to its high cost and her good health.Before issuing a policy, a life insurer requires Enzo to undergo a medical check-up.After obtaining car insurance, Enzo begins to drive less cautiously.Fatima decides to enroll in a prestigious university.

Explanation

Moral hazard occurs when an individual takes greater risks because they are protected from the consequences. In this case, Enzo driving more recklessly after getting car insurance exemplifies moral hazard. The other options do not demonstrate this behavior.

Practice related questions from the same subject.

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4.What condition must a signal meet to effectively convey private information about a product or service?
5.Nicole wants to prevent purchasing a defective car. Before making the purchase, she has a mechanic inspect the vehicle. What is this process called?

Which scenario best illustrates the concept of moral hazard?

Explanation

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