â€œIn economics, moral hazard occurs when an individual has an incentive to increase their exposure to...

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Economics

â€œIn economics, moral hazard occurs when an individual has anincentive to increase their exposure to risk because they do notbear the full costs of that risk. For example, when a person isinsured, they may take on higher risk knowing that their insurancewill pay the associated costs.â€
One of the topics of chapter 10 is market power andconcentration. In the current economic crisis, many large firmswill receive governments â€œbailouts.â€ What is your opinion of thepossibility that government â€œbailoutsâ€ will only increase moralhazard of large firms that are â€œtoo big to fail.â€

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Moral Hazard is a critical concept of economics It clearly defines the fact that irrational behaviour may take place and a person may be able to take larger risks if they believe that the risk would not affect their actions The example of insurance here is correct So long as a person See Answer

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