s on Moral Hazard and Adverse Selection
Topic: Moral Hazard and Adverse Selection
Practice questions
Identify which of the following situations are caused by moral hazard and adverse selection and tell the reasons.
A car salesman knows that he has a faulty car, which is worth $1,000. However, the customer has no idea about these faults. As far as they’re concerned, it’s in working condition, so are willing to pay $2,000.
Fred lives in an apartment above a restaurant, and his apartment always smells like burgers and fries. He has tried unsuccessfully to get the restaurant owner to remedy the problem.
Maria is halfway to work before she realizes that she forgot to lock the back door. Because she has renter’s insurance, she decides it is not worth being late just to go home to lock the door.
There are two individuals who are looking to buy life insurance, one who smokes and does not exercise, and one who doesn't smoke and exercises daily. The insurance company, without further information, cannot differentiate between the individual who smokes and doesn't exercise and the other person.
Your friend, Paris, has super-rich parents who gave him an Audi for her 16th birthday party and have lavished him with luxury items throughout his entire life. He tells you that he has never felt the need to get good grades in school or succeed at a job because his parents provide him with everything.
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Answer:
Name:- Vivek kumar
Admn. No. :- 16648
DOB:- 19/11/2005
Residential address :- New nagar, new bandhagari
Unit name :- NIL
Category :- Ex army man
Cast :- General
House :- Mother Teresa
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