Question

What is moral hazard?

a. It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.
b. It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.
c. It refers to the private, self-interested actions that people pursue, which when taken collectively leads to a loss in economic surplus.
d. It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.

Answer 1

b. It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.

Step-by-step explanation:

Moral hazard -

It occurs when the person increases their exposure to risk in the case , when the other person bears the cost of the risks .

It can occur when the action of one of the party changes due to the detriment of the other after the financial transaction is done .

hence ,

The correct answer for Moral Hazard is ( b ) .