Faced with a reputation for producing automobiles with poor repair records, a number of American companies have offered extensive guarantees to car purchasers (e. g., a seven-year warranty on all parts and labor associated with mechanical problems). Is the policy likely to create a moral hazard problem? Explain. A. No. A moral hazard only occurs if the warranty creates an incentive for sellers to commit an illegal act. In this case, the warranty actually reduces the incentive for sellers to commit any type of fraud. B. Yes. A moral hazard occurs if the seller can influence the probability or magnitude of a repair and yet does not take action. In this case, the warranty reduces the seller's incentive to make product improvements that would reduce the likelihood of a mechanical failure. C. No. A moral hazard only occurs if the warranty creates an incentive for buyers to commit an illegal act. In this case, the warranty actually reduces the incentive for buyers to commit any type of fraud. D. Yes. A moral hazard occurs if the buyer can influence the probability or magnitude of a repair. In this case, buyers have little incentive to perform routine maintenance that would reduce the likelihood of a mechanical failure.