Which economic concept is most directly illustrated by the fact that most medical care purchases are financed through insurance?

• A. Law of diminishing returns
• B. Moral hazard
• C. Price elasticity of demand
• D. Comparative advantage

Answer: (B)

Verified step by step guidance

1. Identify the key economic concept related to the behavior of consumers when they do not bear the full cost of a good or service, such as medical care financed through insurance.
2. Understand that when insurance covers most of the cost, consumers may consume more medical care than they would if they paid the full price themselves.
3. Recognize that this change in behavior due to reduced personal cost is known as 'moral hazard' in economics.
4. Recall that the law of diminishing returns relates to production and input-output relationships, not consumer behavior in insurance contexts.
5. Note that price elasticity of demand measures responsiveness to price changes, and comparative advantage relates to trade efficiency, neither directly explaining increased consumption due to insurance coverage.