Answer:
Upon buying a car with airbags Indy begins to drive recklessly. This is an example of moral hazard problem.
Explanation:
- A moral hazard problem occurs when an individual or party in a contract decides to take risk due to the assurance that the consequences of such kind of a risk shall not affect them.
- In the above context, Indy takes the risk of driving recklessly which might result to a road accident. However, she does this intentionally since she knows her life is covered and might be rescued by the air bag in case of an accident.
