Which of the following is NOT an example of moral hazard in business?
A) A bank buys risky mortgage securities because they believe the government will provide a bail-out if the investment performs badly.
B) A firm uses venture capital to speculate in the commodity futures market.
C) A firm does not hire adequate security protection for its warehouse after it pays for insurance on the property.
D) Firms with the large debt problems are more likely to apply for bank loans than financially stable firms.

Question

Quizplus · Accepted Answer

Moral hazard occurs when one party takes on risk because they do not have to bear the full consequences of that risk. Option D describes adverse selection, not moral hazard, as it involves firms with large debt problems seeking loans, which is a situation where lenders may not have full information about the borrower's risk.

Which of the Following Is NOT an Example of Moral