Question

Martha used to pay for her expenses with her own hard-earned money. She always tried to spend as little as she could. However, she started spending more when she received a scholarship. This behavior is an example of ________. a pecuniary externality the free-rider problem the paradox of thrift moral hazard

Answer 1

moral hazard

Step-by-step explanation:

Based on this scenario it can be said that Martha's behavior towards her spending habits is an example of moral hazard. This refers to when an individual decides to spend more or expose themselves to more risk because someone else is bearing the costs of those risks. Which is what the scholarship fund represents to Martha, someone is bearing the costs of Martha wasting that money, therefore she carelessly spends more when she received the scholarship.