Question

When Joe didn't have health insurance, he acted very cautiously, because he knew he would have to pay for any medical bills he incurred. Now that he has health insurance, he engages in more risky activities, such as skydiving and snowboarding, because he knows that if he gets hurt, his health insurance will cover it.
The economic problem in this story is known as:
a. Signaling
b. Moral hazard
c. Adverse selection
d. Screening

Answer 1

Answer:

The correct option is B

Explanation:

As Joe has health insurance, now he is engaged in the activities which are more risky because he knows that if he gets hurt then the health insurance will cover it. So, this economic problem in the story will be referred to as the moral hazard because it is a hazard when one party can take the risks knowing that the other party will bear the outcome.