The difference between adverse selection and moral hazard is that
A) moral hazard happens at the time parties enter into a transaction; adverse selection occurs after the transaction takes place.
B) moral hazard is the motive that is behind one party entering into a transaction with another party. Adverse selection refers to the other party being harmed by the transaction.
C) moral hazard refers to the likelihood that a transaction will lead one party to be better off at the expense of the other party to the transaction. Adverse selection refers to the consequences of the transaction after it has occurred.
D) adverse selection happens at the time parties enter into a transaction; moral hazard occurs after the transaction takes place.
Question 2
Refer to Table 7-6. All of the following are terms of trade that could possibly benefit both countries except
A) 1/4 of a belt : 1 sword. B) 7/10 of a belt : 1 sword.
C) 4/5 of a belt : 1 sword. D) 2/3 of a belt : 1 sword.
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