Which of the following is an example of moral hazard?
A)Mario opens a smoothie shop rather than a hamburger joint because he only wants to offer vegan options at his establishment.
B)Jenesse buys a bigger size coat than she needs so that she can still wear it if she gains weight in the future.
C)Arturo buys life insurance as he wants to make sure his family will be provided for, even though he is healthy and takes care of himself.
D)Jane builds her home on a piece of property with a great view but that is at high risk for flooding because she can get flood insurance on the low-lying land.

Question

Quizplus · Accepted Answer

Moral hazard refers to a situation in which an individual or entity takes on greater risks than they would otherwise take because they will not bear the full cost of those risks. In this scenario, Jane is building her home on high-risk land because she knows she can get flood insurance to cover any damages that may result from flooding. This demonstrates moral hazard, as Jane is not fully bearing the risk of building on high-risk land, and may be taking on more risk than she would if she did not have insurance.

Which of the Following Is an Example of Moral Hazard