. Because home inspectors are not allowed to profit from any repairs they recomm

Question

. Because home inspectors are not allowed to profit from any repairs they recommend, there is a reduction in: adverse selection. the principal-agent problem. moral hazard. mutually beneficial trades. 7. Paying a lawyer on a contingency fee—the lawyer is paid only if the case is won—solves moral hazard by: providing the service free. reducing the free-rider problem. creating more information. aligning the incentives of the buyer and sellers. 8. Politicians have more information than voters and may not use that information in the interest of the public. This is: moral hazard. a mutually beneficial trade. adverse selection. the principal-agent problem. 9. An example of adverse selection is: a doctor prescribing an unnecessary procedure. an unhealthy person buying health insurance. a real estate agent selling a house faster and at a lower price. a politician using information unknown to voters to profit. 10. A used car will sell for the price of a poor-quality used car even if it is high quality because: only poor quality cars will sell. there is no reason to believe that good-quality used cars will be for sale. only poor-quality used cars will be for sale. owners of good-quality used cars won't want to sell their cars. 11. Buyers of used cars can reduce adverse selection in all of the following ways EXCEPT: offering a price equal to the value of a low-quality used car. having a mechanic look over the used car. requesting a warranty. requesting a “CARFAX” report. . Because home inspectors are not allowed to profit from any repairs they recommend, there is a reduction in: adverse selection. the principal-agent problem. moral hazard. mutually beneficial trades.

Explanation / Answer

Question 6

Home inspectors generally inspects the home to identify defect and to prepare true picture of home mostly related to cases of sale.

Home inspectors are not allowed to profit from any repair they recommend. This implies that home inspectors does not benefit through facilitation of undertaking repairs of the defect identified by them.

This kind of restriction prohibit them from identifying unnecessary defects and thus recommend repairs and earn profit from them.

This kind of restriction reduces moral hazard because if allowed to profit from repair then home inspectors may recommend unnecessary repairs and thus act in unethical manner which indicates moral hazard.

Hence, the correct answer is the option (3).

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