Question

Which of the following is a positive impact of moral hazard through insurance?

Group of answer choices

choosing the most expensive treatment but is as effective as a cheaper alternative

income effect

ok to engage in riskier behavior

choosing the most expensive treatment which is less effective than a cheaper alternative

Answer 1

Moral hazard in insurance occurs when people do not proper incentive to take care of their health as they know that if something happens to their health, insurance company will bear the cost.

• This is the positive impact of moral hazard as people do not die due to lack of money or expensive medical treatments. They get expensive which is as effective as cheaper alternative.
• Moral hazard does not impact real income which cause no income effect.
• This is not a positive impact as people plays with their health with no good cause behind it.
• This is not a positive impact as they tends to spend more money which is actually less effective than cheaper alternative.