Question

Martha used to pay for her expenses with her own hard-earned money. She always tried to spend as little as she could. However, she started spending more when she received a scholarship. This behavior is an example of ________.

Answer 1

Answer:Moral Hazard

Explanation:

Definition of 'Moral Hazard' is when there is an financial transactions that occur between two parties and the one who receive this transaction involves themselves in risky spending knowing that what ever negative consequences will result to the other party suffering or incurring the cost and not them. This is common when both parties don't have complete Information about each party. It is not about what is right but about the level of maximum benefits hence the use of morality.

Martha is over spending now because the scholarship will take care of a her spendings.