Which of the following is an example of moral hazard?

1. Which of the following is an example of moral hazard?
a. Reckless drivers are the ones most likely to buy automobile insurance.
b. Retail stores located in high-crime areas tend to buy theft insurance more often than stores located in low-crime areas.
c. Drivers who have many accidents prefer to buy cars with air bags.
After employees sign up for the company health plan that covers all
doctors’ visits, they start going to the doctor every time they get a

2. Moral hazard means that a borrower would be more likely to use loan proceeds to invest in which of the following?
a. A blue chip stock
b. A mutual fund
c. A corporate bond fund
d. A start-up biotechnology company

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3. Which of the following is not an example of a process designed to combat moral hazard problems?
a. Banks include restrictive covenants in loan agreements.
b. Universities have students complete evaluations of professor performance at the end of a class.
c. Insurance companies require applicants to provide medical history information as part of the application process.
d. Employers regularly monitor employee performance.

Due to the problems associated with _______________, one would expect a
doctor to spend _______________ time with patients after buying
malpractice insurance.
a. moral hazard; more
b. adverse selection; more
c. moral hazard; less
d. adverse selection; less

A moral hazard explanation would tell us that homeowners are
_______________ likely to lock their houses at night after buying
a. less
b. more
c. equally
d. None of the above