Moral hazard occurs when a person with insurance:
Correct answer: B. Changes behaviour after being insured
- A. Has better information before buying the policy
- B. Changes behaviour after being insured
- C. Cannot obtain insurance because of high risk
- D. Selects a policy with the lowest premium
Explanation
Moral hazard is a post-contract problem in which protection from loss changes the insured person's behaviour. Adverse selection occurs before the contract, when hidden information affects who chooses to obtain insurance.
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About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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