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CAIE A-Level Economics 7.4.6 Asymmetric Information and Moral Hazard

Practise distinguishing unequal information before exchange from riskier behaviour after protection and applying both failures to professional services, insurance and benefits.

Syllabus
2026–2028
Course
Economics 9708
Level
A2

Exam points

  • identify asymmetric information when one party knows more about quality or need than another
  • identify moral hazard when protection changes behaviour because another party bears the risk
  • apply the distinction to unnecessary treatment, insured property or unemployment benefits

7.4.6—Asymmetric information and moral hazard question 1

[Maximum number: 1]

What is the definition of moral hazard?

A

An increase in the likelihood of taking risks because another party is paying for these risks.

B

The loss of social welfare arising from the consumption of a good.

C

When buyers and sellers have different amounts of information regarding product quality.

D

When costs and benefits are taken into account when a decision is being made.

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