Refer to Scenario 17.3. Moral hazard arises in this situation because once the firm
A) pays the premium that is based on the 0.001 probability, it has no incentive to spend the additional $80 for the fire protection program, so the true probability of loss is no longer 0.001.
B) pays the premium that is based on the 0.01 probability, it has no incentive to spend the additional $80 for the fire protection program, so the true probability of loss is no longer 0.01.
C) puts the fire protection program in place, it has less incentive to spend $300 for a premium, leaving the firm underinsured.
D) puts the fire protection program in place, it has less incentive to spend $6,000 for a premium, leaving the firm underinsured.
E) puts the fire protection program in place, it will consider that a substitute for insurance and not be able to deal with the loss from a fire should it occur.
A
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All of the following are factors that raise economic development EXCEPT
A) establishing a legal system. B) an educated work force. C) reducing trade barriers. D) government control of the country's resources.
If interest rates are to remain constant, the money supply should change _____
Fill in the blank(s) with the appropriate word(s).
Which of the following financial assets is considered to be essentially risk-free?
A. Gold. B. Stock in Fortune 500 companies. C. Real estate. D. Short-term U.S. government bonds.
If scalpers were to charge only face value for tickets to a sold-out event, there would be
A. a lower price in the market for scalped tickets than the equilibrium price. B. a scalped ticket available for every seat in the stadium. C. a higher price in the market for scalped tickets than the equilibrium price. D. a price in the market for scalped tickets equal to the equilibrium price.