Chapter EMC, Problem 4MCQ

To determine

To state: The name of the term because of which the moral hazard arises.

Answer to Problem 4MCQ

The correct option is A i.e asymmetric information.

Explanation of Solution

So, the correct option is A i.e asymmetric information.

The term Asymmetric information is used to refer to when one party has better or more information than the other. There are certain transactions, where the sellers can take benefit of buyers as asymmetric information occurs wherein the seller has more information about the good being sold than that of the buyer.

Moral hazard rises when individuals have more knowledge about their actions than others. This results in a falsification of incentives to apply or to take care of effort when someone else tolerates the costs of the lack of effort or care.

So, moral hazard is a result of asymmetric information.

Economics Concept Introduction

Introduction:

Moral hazard rises when individuals have more knowledge about their actions than others. This results in a falsification of incentives to apply or to take care of effort when someone else tolerates the costs of the lack of effort or care.