Section 1 - Instruction

We've covered several reasons why markets might not produce the best outcomes for society: externalities, public goods, and asymmetric information. Being able to diagnose the specific failure is the first step to finding the right policy cure.

Engagement Message

Which type of failure do you think is most common in everyday life?

Section 2 - Practice

Type

Sort Into Boxes

Practice Question

Let's categorize these market failures.

Labels

  • First Box Label: Asymmetric Info
  • Second Box Label: Public Good

First Box Items

  • Used car sales
  • Health insurance
  • Job interviews

Second Box Items

  • National defense
  • Street lighting
  • Clean air
Section 3 - Practice

Type

Multiple Choice

Practice Question

A factory emits pollution that harms the health of nearby residents, but the factory doesn't pay for these health costs. This is a classic example of:

A. A negative externality B. A positive externality C. Adverse selection D. The free-rider problem

Suggested Answers

  • A - Correct
  • B
  • C
  • D
Section 4 - Practice

Type

Swipe Left or Right

Practice Question

Let's distinguish between the two main information problems. Swipe left for Adverse Selection scenarios and right for Moral Hazard scenarios.

Labels

  • Left Label: Adverse Selection
  • Right Label: Moral Hazard
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