Question

Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company. Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes. The example with Abby
illustrates adverse selection; the example with Brad illustrates moral hazard.

Answer 1

Options:

A.And the example with Brad illustrate adverse selection.

B.and the example with Brad illustrate moral hazard.

C. illustrates adverse selection; the example with Brad illustrates moral hazard.

D.illustrates moral hazard; the example with Brad illustrates adverse selection.

Answer:C. Illustrates adverse selection; the example with Brad illustrates moral hazard.

Explanation:

A Moral hazard is a term that is connected with Financial risks, a moral hazard has been described as the risk exposure especially of a financial nature caused by the activities and actions of another partner.

In insurance, it is also known as when a person increases their chances of exposure to risk because the burden arising from the risk is paid for or carried by another partner which may be an insurance company.