A situation in which one side of an economic relationship takes undesirable or costly actions that the other side of the relationship cannot observe is called:

A. an injunction.

B. moral hazard.

C. thick markets.

D. adverse selection.

The correct answer to the given question is option B. moral hazard.

When there is information asymmetry between the buyer and the seller after the transaction takes place, it is called as moral hazard. Since in the given situation, one side of an economic relationship is taking undesirable or costly actions at the cost of other side after the relationship occurs, it is a case of moral hazard.

For example, when a person buys health insurance from certain insurance provider, he or she might deliberately take risks related to his or her health by eating junk food after the policy term commences because of the protection provided by policy. This is a case of moral hazard.