Upon buying a car with airbags,Indy begins to drive recklessly.This is an example of the:

A) principal-agent problem.
B) adverse selection problem.
C) moral hazard problem.
D) free-rider problem.

Question

Upon buying a car with airbags,Indy begins to drive recklessly.This is an example of the:A)  principal-agent problem.B)  adverse selection problem.C)  moral hazard problem.D)  free-rider problem.

chloe bwabwa · Accepted Answer

Final Answer : C, Explanation :  The moral hazard problem occurs when an individual takes more risks or engages in more reckless behavior when they are protected by insurance or other safety measures. In this scenario, Indy is driving recklessly because he knows he has airbags to protect him, which is the classic example of moral hazard. The principal-agent problem relates to conflicts of interest between an agent (e.g., an employee) and their principal (e.g., a company). Adverse selection relates to situations where one party has more information than the other and uses that to their advantage, and free-rider problems occur when people benefit from a good or service without paying for it. None of these concepts apply to Indy's behavior in the scenario described.

Upon buying a car with airbags,Indy begins to drive recklessly.This is an example of the:

A) principal-agent problem.
B) adverse selection problem.
C) moral hazard problem.
D) free-rider problem.

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