KEY QUESTION Place an “M” beside the items in the following list that describe a moral hazard problem and an “A”

beside those that describe an adverse selection problem:

a. A person with a terminal illness buys several life insurance policies through the mail.

b. A person drives carelessly because he or she has automobile insurance.

c. A person who intends to “torch” his warehouse takes out a large fire insurance policy.

d. A professional athlete who has a guaranteed contract fails to stay in shape during the off-season.

e. A woman who anticipates having a large family takes a job with a firm that offers exceptional child care benefits.