CAIE A-Level Economics 7.4.6 Asymmetric Information and Moral Hazard

CAIE A-Level Economics 7.4.6 Asymmetric Information and Moral Hazard
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

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

How this is tested

  • 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

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.