★ Must-know
📌 Physical hazards are visible conditions of the subject matter or environment that can cause or increase loss, while moral hazards involve intentional dishonesty and morale hazards involve carelessness or lack of attention.
📌 Speculative risk can result in either loss or gain, whereas pure risk offers the possibility of loss but not gain.
Further detail
📌 Static risk arises from random natural events or human actions, whereas dynamic risk arises from social change, such as changing consumer preferences or new products.
1. Which combination captures the three elements that together characterize risk?
2. A factory has an exposed electrical wire that could cause a fire; a manager falsifies safety records, while an employee carelessly leaves equipment unattended. How are these hazards classified, respectively?
3. A business investment could either earn a profit or result in a loss, while a separate fire exposure can cause damage but offers no chance of gain. Which classification fits these two risks?
What three elements make up risk?
Uncertainty, the possibility of loss, and futurity.
What characterizes a physical hazard?
A visible condition of the subject matter or environment that can cause or increase loss.
What characterizes a moral hazard?
Intentional dishonesty.
What characterizes a morale hazard?
Carelessness or lack of attention.
What outcomes are possible under speculative risk?
Loss or gain.
What outcome can pure risk produce?
Loss, but not gain.
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