Unit 2: Microeconomics
Topic 2.10: Market Failure — Asymmetric Information Questions
Practice 20 exam-style questions for IB Economics Topic 2.10. Review the question stems below, then unlock the full Question Bank to access markschemes, model answers, and AI grading.
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2026
Define the term asymmetric information.
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Moral hazard is a problem of asymmetric information that occurs when:
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Warranties offered by sellers of used cars are an example of:
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One way to reduce asymmetric information in markets is through:
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Insurance companies require medical examinations before issuing life insurance policies. This is an example of:
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Define asymmetric information and explain how it can lead to market failure.
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Using the example of health insurance, explain the problem of adverse selection.
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Explain two market-based solutions to the problem of asymmetric information.
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The market for second-hand cars is often cited as an example of asymmetric information because:
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Explain how reputation mechanisms and online reviews help reduce asymmetric information.
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Explain the concept of moral hazard using an example from everyday life.
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2023
Insurers in Tessaly find that the people keenest to buy health cover are those who already know they are ill.
Define the term adverse selection.
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Explain two ways in which government intervention can reduce asymmetric information.
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2026
Explain how moral hazard differs from adverse selection.
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2026
Explain two government responses to asymmetric information in a market.
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2026
Evaluate the policies a government can use where asymmetric information is significant.
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2026
Explain why a seller may choose to signal quality when buyers cannot observe it.
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