PRINC. OF ECON. LOOSE W/APLIA+COUPON
7th Edition
ISBN: 9781337365635
Author: Mankiw
Publisher: CENGAGE C
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Question
Chapter 22, Problem 1QR
To determine
Moral hazard.
Expert Solution & Answer
Explanation of Solution
Moral hazard refers to the tendency of a person who is imperfectly monitored to engage in dishonest or undesirable behavior.
To reduce the severity of the problem of moral hazard, an employer may rectify the problem by using the following strategies:
- 1. Better monitoring: This is to prevent irresponsible actions that might occur in the absence of supervision.
- 2. Paying higher wages: A worker who earns efficiency wage is unlikely to shirk his responsibility or work.
- 3. Delayed payments: This involves delaying part of the worker's compensation until later in the worker's life.
Economics Concept Introduction
Concept introduction:
Moral hazard: Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off.
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Chapter 22 Solutions
PRINC. OF ECON. LOOSE W/APLIA+COUPON
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- The difference between moral hazard and adverse selection is a. moral hazard has to do with unobservable characteristics of individuals b. moral hazard has to do with unobservable actions of individuals c. adverse selection is when individuals change their behaviors because of a contract d. adverse selection is when you choose the wrong answer on a testarrow_forwardExplain how moral Hazard can lead to market failure.arrow_forwardIn the health insurance market, moral hazard occurs when A.) chronically ill people refuse appropriate medical treatment. B.) chronically ill people buy insurance. C.) patients sue their doctor. D.) chronically ill people cannot buy insurance. E.) providers overtreat patients..arrow_forward
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