Editing Moral hazard (section)

== Numerical example ==
[[File:Moral_Hazard_Numerical_Example.png|alt=A graphical representation of moral hazard in health insurance. The graph plots price against quantity of health care. Without health insurance, an individual would consume less health care than with health insurance, potentially leading to moral hazard.|thumb|upright=1.3|The blue line represents the downward sloping [[Demand curve|marginal benefit curve]]. The orange line represents the constant $10 [[Supply (economics)|marginal cost curve]] without insurance. The green star is the market equilibrium. When the individual is insured, the marginal cost curve shifts down to 0, leading to a new equilibrium at the yellow star.]]
Consider a potential case of moral hazard in the health care market caused by the purchase of health insurance. Assume health care has constant marginal cost of $10 per unit and the individual's demand is given by ''Q'' = 20 − ''P''. Assuming a perfectly competitive market, at equilibrium, the price will be $10 per unit and the individual will consume 10 units of health care. Now, consider the same individual with health insurance. Assume this health insurance makes health care free for the individual. In this case, the individual will have a price of $0 for the health care and thus will consume 20 units. The price will still be $10, but the insurance company would be the one bearing the costs.

This example shows numerically how moral hazard could occur with health insurance. The individual consumes more health care than the equilibrium quantity because they don't bear the cost of the additional care.