Question

if a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)

moral hazard problem.
reverse wealth problem.
adverse selection problem.
negative externality problem.

question 11
2 pts
at the current price, there is a shortage of a product. we would expect price to
decrease, quantity demanded to increase, and quantity supplied to decrease.
increase, quantity demanded to increase, and quantity supplied to decrease.
increase, quantity demanded to increase, and quantity supplied to increase.
increase, quantity demanded to decrease, and quantity supplied to increase.

Explanation:

1. For the first question, moral hazard occurs when one party takes more risks because another party bears the cost of those risks. Here, after getting auto - insurance, the person drives less carefully as the insurance company will bear the cost of potential accidents.
2. For the second question, when there is a shortage of a product at the current price (quantity demanded > quantity supplied), according to the law of supply and demand, the price will increase. As the price increases, quantity demanded will decrease (due to the law of demand) and quantity supplied will increase (due to the law of supply).

Answer:

1. moral hazard problem.
2. increase, quantity demanded to decrease, and quantity supplied to increase.