Answer to Question #48106 in Other Economics for Billy

Question #48106
Which of the following is an example of moral hazard? There are likely more cars of low quality than of high quality offered for sale without warranties in the used car market. or An individual who eats well and exercises regularly chooses not to purchase health insurance. or An individual drives less cautiously after obtaining automobile insurance. or A car salesman offers a full warranty on a used car for 90 days.
Expert's answer
An individual drives less cautiously after obtaining automobile insurance is true statement.
Moral hazard is the individual's behavior, who consciously increasing the risk of damage based on the fact that the insurance company will cover the damages. The problem of moral hazard or irresponsibility arises when the possession of an insurance policy leads to the fact that the insured side allows a greater risk or less committed to ensuring the prevention of the event, leading to losses. It often becomes that irresponsibility is the reason of the reluctance of insurance companies to insure certain types of risk.

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