(Solved):The potential for a seller to alter behavior in an undesirable way following an economic transaction is called: a. moral hazard. b. a positive externality. c. a negative externality. d. adverse… View Answer…

 

Question

The potential for a seller to alter behavior in an undesirable way following an economic transaction is called:

a. moral hazard.

b. a positive externality.

c. a negative externality.

d. adverse selection.

 

EXPERT ANSWER

The answer is a. moral hazard.

Moral hazard happens when there is asymmetric information between two parties and there is a change in the behavior of one party after a deal has taken place. Moral hazard alludes to the act of “immorally”

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