Question

Consider the following story: When Joe didn't have renter's insurance, he was very careful not to leave candles lit in his apartment and locked the door when he left. Now that he has renter's insurance, he typically leaves candles burning all day and forgets to lock the door, because he knows that even if his apartment catches on fire or gets broken into, his insurance will cover it. The economic problem in this story is known as:a. The free-rider problem

b. Moral hazard
c. Government failure
d. Adverse selection

Answer 1

b. Moral hazard

Step-by-step explanation:

Joe has Moral hazard problem because he feels that he is protected in some way from risk, thereby acting differently than when he didn't have the insurance protection.