Which of the following statements about moral hazard is true?
A)Individuals engage in risk when making exchanges in the grey market.
B)People tend to behave in a riskier way when they're insured.
C)It occurs when one party acts unethically in a market exchange.
D)It occurs when both parties act unethically in a market exchange.

Question

Quizplus · Accepted Answer

Moral hazard occurs when individuals or entities take on more risk because they know they are protected, particularly through insurance. This concept explains how the presence of insurance can lead to riskier behavior because the insured party knows that the insurer will bear the cost of such behavior.

Which of the Following Statements About Moral Hazard Is True