As the cost of automobile insurance rises, good drivers might reduce their coverage while poor drivers will likely maintain their coverage. This situation is known as moral hazard.
12) A good driver who becomes more reckless after obtaining automobile insurance is an example of moral hazard.
13) After Fred discovered he was seriously ill, he went and purchased health insurance without telling the insurance company about his illness. This is an example of moral hazard.
14) Moral hazard occurs when individuals become more careful after purchasing insurance.
15) Ward is thinking about buying fire insurance for his store. Explain how asymmetric information occurs when the policy is issued. Explain how moral hazard might occur after the policy is issued.
16) What is moral hazard?
17) After James purchased life insurance, he began to live recklessly, parachuting out of airplanes and bungee-jumping. What economic phenomenon was occurring with this change in James' behavior? Explain.
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