Market Failure Quiz

Market Failure: ten practice questions on external costs, information, and public goods, with concepts and calculations. Every answer is explained.

Free, with no sign-up.

For High school students and adults reviewing the topic.

About 15 minutes. 10 questions.

How does it work?

Choose one answer or enter a number in the stated unit and rounding, then check it.
Your first submitted answer counts toward the score. There is no timer.
Keep full precision during calculations and round only the final answer as requested.

What will you get?

See your first-attempt score and an explanation for every answer.

Question 1In an illustrative competitive market, marginal private benefit is 100−2Q and marginal private cost is 20+2Q, both in dollars per unit. Marginal external cost is a constant $16 per unit, and there is no external benefit. Find the unregulated market quantity in units, rounded to two decimal places.

Enter a number in units.

Answers within 0.005 units of the expected value are accepted.

Question 2In an illustrative competitive market, marginal private benefit is 100−2Q and marginal private cost is 20+2Q, both in dollars per unit. Marginal external cost is a constant $16 per unit, and there is no external benefit. Find the socially efficient quantity in units, rounded to two decimal places.

Enter a number in units.

Answers within 0.005 units of the expected value are accepted.

Question 3In an illustrative competitive market, marginal private benefit is 100−2Q and marginal private cost is 20+2Q, both in dollars per unit. Marginal external cost is a constant $16 per unit, and there is no external benefit. Find the corrective tax per unit in dollars/unit, rounded to the nearest cent.

Enter a number in dollars/unit.

Answers within 0.005 dollars/unit of the expected value are accepted.

Question 4In an illustrative competitive market, marginal private benefit is 100−2Q and marginal private cost is 20+2Q, both in dollars per unit. Marginal external cost is a constant $16 per unit, and there is no external benefit. Here, deadweight loss is the area between marginal social cost and marginal benefit over the units produced beyond the efficient quantity. Find that loss in dollars, rounded to the nearest cent.

Enter a number in dollars.

Answers within 0.005 dollars of the expected value are accepted.

Question 5A warning broadcast can reach extra listeners without reducing others’ access, and excluding nonpayers is difficult. What classification fits?

A private good, because receiving a warning is an individual benefitA common resource, because additional listeners use up the informationA public good, because access is non-rival and exclusion is difficultA monopoly, because one broadcaster supplies the warning

Question 6Fish in an open-access lake are hard to exclude people from taking, and a catch leaves fewer fish for others. What problem can follow?

Underuse, because the absence of a fee discourages catching fishFree riding on a benefit that additional users do not depleteEfficient use, because open access gives users equal incentivesOveruse, because catches impose a cost on other users of the stock

Question 7Used-car sellers know quality that buyers cannot observe, so buyers offer an average-quality price. What can happen?

Owners withdraw higher-quality cars rather than accept the pooled priceAn average price makes the cars comparable in physical qualityThe price offer reveals which individual sellers have reliable carsThe main difficulty is hidden behavior after an insurance agreement

Question 8A protected seller restricts output to raise price. Where can an efficiency loss arise?

The higher price itself uses up productive resourcesThe lost trades have benefits above their production costsThe reduced quantity brings demand and cost into social balanceThe seller’s higher profit is the measure of the lost social surplus

Question 9A bakery and one nearby household can negotiate cheaply over delivery noise, with clear enforceable rights. What becomes more feasible?

An agreement that makes changing the delivery method costlessA settlement whose feasibility does not depend on enforceable rightsA model that can be transferred directly to a large affected populationAn agreement comparing the cost of noise reduction with harm avoided

Question 10A regulator identifies pollution damage but has poor information about compliance costs. What should policy analysis do?

Select an intervention on the strength of the pollution diagnosisUse the ideal regulatory outcome as the alternative to the existing marketCompare feasible remedies by their costs and firms’ responses to themEstimate compliance costs while holding firms’ behavior fixed

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