An example of the ________ problem would be if Brian borrowed money from Sean in order to purchase a used car and instead took a trip to Atlantic City using those funds.
A)moral hazard
B)adverse selection
C)costly state verification
D)agency

Question

Quizplus · Accepted Answer

The situation described in the question is an example of moral hazard, which occurs when one party has an incentive to take risks that are not in the best interest of the other party. In this case, Brian had an incentive to misuse the borrowed funds because he knew that he would not suffer the full consequences of his actions.

An Example of the ________ Problem Would Be If Brian