(Solved):Liz starts driving rashly after buying insurance. This is an example of a(n) A. negative externality. B. common-resource problem. C. free-rider problem. C. moral-hazard problem. View Answer…

 

Question

Liz starts driving rashly after buying insurance. This is an example of a(n)

A. negative externality.

B. common-resource problem.

C. free-rider problem.

C. moral-hazard problem.

 

EXPERT ANSWER

  • Liz starts driving rashly after buying insurance. This is an example of a moral-hazard problem.

Moral hazard is a term used in economics to show the phenomenon in which an individual is incentivized to increase his/her level of risk exposure since the individual is protected against the costs of the

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