How does moral hazard affect market outcomes?
It's a matter of incentives. Buying a good may give the buyer reason not to behave as it did before the purchase. For example, if you rent a car, you may not take as much care with it as you would if it were your own. The result may be higher car repair costs and this eventually translates into higher rental prices. Economists call this negative outcome moral hazard.
You might also like to view...
What is the difference between a nominal value and a real value?
A. A nominal value is measured in monetary units while a real value is measured in current dollars. B. A nominal value is measured in market rates while a real value is measured in terms of exchange rates. C. A nominal value is measured in units of constant purchasing power while a real value is measured in units of current purchasing power. D. A nominal value is measured in current market prices while a real value is measured in base year prices.
Refer to Figure 4-4. The figure above represents the market for iced tea. Assume that this is a competitive market. If the price of iced tea is $1
A) not enough consumers want to buy iced tea. B) the quantity supplied is economically efficient but the quantity demanded is economically inefficient. C) economic surplus is maximized. D) the quantity supplied is less than the economically efficient quantity.