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Home » Moral Hazard Practice Questions

Asymmetric Information: How Hidden Facts Shape Markets

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Asymmetric Information

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1. Asymmetric Information and Used Cars
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2. Asymmetric Information in Health Insurance
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Moral Hazard

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1. Moral Hazard
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2. Solutions to Moral Hazard
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Signaling

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1. Signaling
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Asymmetric Information: How Hidden Facts Shape Markets
Moral Hazard
Moral Hazard
Practice Questions

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Question 1 of 4

1. Question

Which of the following accurately describes the principal-agent problem?

a. Employees have less power than employers
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b. Agents are incentivized to look for profit opportunities to the exclusion of personal responsibilities
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c. Principals never want to work with agents
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d. Principals and agents have diverging incentives
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Question 2 of 4

2. Question

Select all of the following scenarios in which the moral hazard problem applies:

a. George’s boss is away at a sales convention and George wants to watch the playoffs rather than finish his sales report
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b. Lexi is trying to decide whether to buy a Mac or PC for college
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c. Kiana just got a job with upgraded health insurance and benefits, and wants to go skydiving this weekend
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d. Lucas wants to sell his dysfunctional car on Craigslist
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e. Elena is buying Coca-Cola from the work vending machine
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Question 3 of 4

3. Question

In markets with moral hazard:

a. More transactions occur than with perfect information
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b. Fewer transactions occur than with perfect information
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c. The same number of transactions occur
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Question 4 of 4

4. Question

Why might government bailouts of private firms lead to moral hazard?

a. They encourage firms to take greater risks by shielding them from the consequences of failure
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b. They raise taxes on competitors, which limits private investment
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c. They reduce public trust in regulation and oversight
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d. They lead to reduced innovation by protecting large companies
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