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2) Moral hazard is an example of asymmetric information and we saw how moral hazard allowed...

2) Moral hazard is an example of asymmetric information and we saw how moral hazard allowed banks to make riskier loans then they should have. Moral hazard also exists in other industries such as health and life insurance. Find and explain a moral hazard from an industry beyond the banking industry.

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Answer #1

Let us take a look at the market for laptops

These days companies are providing accidental damage coverage for their products to the consumers.

That is, any damage or fault in the product would be completely corrected and covered by the seller.

This shifts the risk of laptop damage and cost on to the seller rather than the consumer.

As a result of this, the consumer starts using the laptop carelessly and does not take care of its performance and how to keep it safely because he knows all loss would be borne by the seller and he will get a new laptop free of cost.

This is a clear case of moral hazard.

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