The reason that this scenario perfectly illustrates the problem of "moral hazard" in particular is that
Suppose that engineers designed a revolutionary american football helmet that greatly increased the amount of protection for players' heads.
Unfortunately however, after the new helmets were introduced, there was an INCREASE in head injuries!
This happened because players started taking greater risks on the field due to the belief that the new helmets would protect them.
A. A change in policy (i.e., the helmets) led to more risky behavior after the new policy was introduced.
B. Football players are usually "risk seeking" individuals by nature.
C. There was no conceivable way for the engineers to (scientifically) demonstrate that the new helmets were safer than the old ones.
D. All of the above
Answer: A change in policy (i.e., the helmets) led to more risky behavior after the new policy was introduced.
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When the selling price of a good goes up, what is the relationship to the quantity supplied?
a) the cost of production goes down b) The profit made on each item goes down c) It becomes practical to produce more goods d) There is no relationship between the two
Many economists argue that the best way to correct employer discrimination is to
a. pass comparable worth laws b. increase the price of output, thereby raising profit c. shift the marginal revenue product curve of the unfavored group to the right d. shift the demand for labor to the left e. allow the market mechanism to equalize wages