Microeconomics 18th Edition by Campbell McConnell, Stanley Brue, Sean Flynn

Exercise 11

Place an "M" beside the items in the following list that describe a moral hazard problem and an "A" beside those that describe an adverse selection problem:
a. A person with a terminal illness buys several life insurance policies through the mail.
b. A person drives carelessly because he or she has automobile insurance.
c. A person who intends to "torch" his warehouse takes out a large fire insurance policy.
d. A professional athlete who has a guaranteed contract fails to stay in shape during the off-season.
e. A woman who anticipates having a large family takes a job with a firm that offers exceptional child care benefits.