Economics · Unit 18

Advanced Economics

Market failure, game theory, and behavioral economics

The final unit covers where the standard model breaks down, which is the most active part of the field.

It covers market failure and externalities, game theory, behavioural economics, monetary policy in depth, and data and econometrics.

This unit breaks down into 23 short steps and 120 questions, starting at difficulty 1 and building to 5. Below you can see exactly what it covers, how the path is structured, and worked examples with explanations.

Steps: 23
Questions: 120
Difficulty: 1-5

What this unit covers

Market Failure and Externalities
Monetary Policy in Depth
Game Theory
Data and Econometrics
Behavioral Economics

Where this fits

The last unit in the track. Needs Microeconomics and Macroeconomics.

Where people slip

Behavioural economics does not refute standard economics; it constrains it. People deviate from the rational model in systematic, predictable ways, which is a correction rather than a demolition.

How the unit is structured

Advanced Economics runs as 23 short steps that unlock in order. 17 are practice rounds and 6 are challenge rounds that pull together everything before them. Questions start at difficulty 1 and climb to 5 as you progress.

Step 1 · easierStep 23 · harder

Challenge rounds

Example questions

30 real questions from this unit, with the answer and the reason behind it, grouped by what they practise. There are 120 in the unit altogether.

Behavioral Economics

True or falseLevel 1
1. Behavioral economics assumes people are always perfectly logical calculators.
Answer: False
Its whole point is that real people use shortcuts and feelings, so they are not perfectly logical.
Choose all that applyLevel 2
2. Which of these are examples of a helpful 'nudge'? Select all that apply.
- Placing healthy snacks at eye level in a shopcorrect
- Automatically enrolling workers in a savings plan they can leavecorrect
- Showing a suggested tip amount on a billcorrect
- Banning all unhealthy food by law
- Fining people for eating dessert
Nudges guide choices gently while keeping every option open.
Fill the blankLevel 2
3. Leaning too much on the first number you see, like the first price offered, is called ____.
- anchoringcorrect
- saving
- bartering
- budgeting
Anchoring means the first number sticks in your mind and pulls your judgment toward it.
Multiple choiceLevel 2
4. What is a gentle 'nudge' in behavioral economics?
- A small change that guides choices without forbidding any optioncorrect
- A law that bans a product outright
- A large fine for making a bad choice
- A hard shove to move someone in a queue
A nudge steers people gently, like putting fruit at eye level, while leaving every choice open.
Odd one outLevel 2
5. Which one is NOT a mental shortcut or bias studied in behavioral economics?
- Supply and demandcorrect
- Loss aversion
- Anchoring
- Sunk cost fallacy
Supply and demand is a market model, while the others are human thinking biases.
Put in orderLevel 3
6. A shopper is anchored by a high 'original' price. Order what happens.
Answer: The tag shows a high original price -> The shopper's mind anchors on that number -> A lower sale price is shown next to it -> The sale now feels like a big bargain
Anchoring makes the first number set the reference point, so the discount seems larger than it is.

Data and Econometrics

Multiple choiceLevel 1
7. What does 'econometrics' mean?
- Using data and statistics to study economicscorrect
- Measuring the size of coins
- Drawing maps of countries
- Writing new economic laws
Econometrics applies statistics to real economic data to test ideas and measure relationships.
True or falseLevel 1
8. In econometrics, 'data' means the real numbers and facts collected about the economy.
Answer: True
Data are the observations, like prices or incomes, that economists analyze.
Choose all that applyLevel 2
9. Which of these does econometrics actually use? Select all that apply.
- Data collected from the real worldcorrect
- Statistics and graphscorrect
- Finding relationships between variablescorrect
- Guessing with no numbers at all
- Only opinions and feelings
Econometrics leans on real data, statistics, and measured relationships, not guesses.
Match the pairsLevel 2
10. Match each data term to its meaning.
Answer: Correlation = Two variables tend to move together; Causation = One thing actually brings about another; Sample = A smaller group drawn from the whole; Regression = Fitting a line to summarize data
These terms are the everyday toolkit of anyone reading economic data.
Odd one outLevel 2
11. Which of these is NOT a way to gather or show data?
- Barteringcorrect
- A graph
- An average
- A survey
Bartering is trading goods without money, while the others are ways to gather or show data.
Fill the blankLevel 3
12. A single data point that sits far away from all the others and can distort a best-fit line is called an ____.
- outliercorrect
- average
- estimate
- intercept
An outlier is an unusual observation that can pull a regression line away from the general pattern.

Game Theory

Multiple choiceLevel 1
13. Game theory is mainly the study of which of these?
- How people make choices when the result depends on what others choose toocorrect
- How to design fun video games for phones
- How to win at running races
- How prices change during a holiday sale
Game theory studies strategy, where your best choice depends on what others decide too.
Choose all that applyLevel 2
14. Which of these are true about the prisoner's dilemma? Select all that apply.
- Two players each choose without knowing the other's choicecorrect
- Both would be better off if they had cooperatedcorrect
- It shows how self-interest can lead to a worse group resultcorrect
- The players always end up cooperating
- It only ever applies to real prisoners
The dilemma shows two independent choosers ending up worse than if they had cooperated.
Fill the blankLevel 2
15. A choice that is your best option no matter what the other player does is called a ____ strategy.
- dominantcorrect
- weak
- random
- hidden
A dominant strategy is the best choice for you regardless of what others do.
Guess the numberLevel 2
16. In a two-player zero-sum game, the two players' payoffs always add up to what number?
Answer: 0
By definition a zero-sum game's payoffs sum to zero, since one player's gain is the other's loss.
Match the pairsLevel 2
17. Match each game theory term to its meaning.
Answer: Player = A decision maker in the game; Strategy = A player's plan of action; Payoff = The result a player receives; Dominant strategy = Best choice no matter what others do
These four terms are the building blocks used to describe any strategic game.
Odd one outLevel 4
18. Which of these is NOT a concept from game theory?
- Diminishing marginal utilitycorrect
- Dominant strategy
- Nash equilibrium
- Mixed strategy
Diminishing marginal utility comes from consumer theory, while the others are game theory ideas.

Market Failure and Externalities

Fill the blankLevel 2
19. When many people share a resource that no one owns, like a fishing lake, it can get overused. This is called the tragedy of the ____.
- commonscorrect
- market
- savings
- tariff
The tragedy of the commons is when a shared, unowned resource gets used up too fast.
Match the pairsLevel 2
20. Match each real-world example to the spillover effect it shows.
Answer: Factory smoke = Harms bystanders; A flu vaccine = Helps bystanders stay healthy; A streetlight = Everyone nearby can use it; An overfished lake = A shared resource used up too fast
Each example is a spillover effect that a plain market can easily miss.
Multiple choiceLevel 2
21. An 'externality' is best described as which of these?
- A cost or benefit that affects someone who was not part of the dealcorrect
- The final price a buyer pays at the till
- The profit a seller keeps after costs
- A tax added on at the checkout
An externality spills over onto a third party, a bystander who did not buy or sell.
Choose all that applyLevel 3
22. Which of these are usually considered public goods? Select all that apply.
- National defensecorrect
- A lighthouse guiding shipscorrect
- Street lightingcorrect
- A ticketed concert
- A privately owned car
Public goods are non-excludable and non-rival, like defense, lighthouses, and street lighting.
Odd one outLevel 3
23. Which of these is NOT a standard tool for reducing a negative externality like pollution?
- Paying firms a cash bonus for each unit they pollutecorrect
- A tax on each unit of pollution
- A legal limit on emissions
- Tradable pollution permits
Taxes, legal limits, and tradable permits all curb pollution, while paying firms to pollute would only increase it.
Put in orderLevel 4
24. Order the logic of using a Pigouvian tax to fix a negative externality.
Answer: A good's production creates an external cost -> The market ignores that cost and overproduces -> A tax equal to the external cost is added -> Producers face the full social cost and cut output to the efficient level
The tax internalizes the external cost, moving output toward the socially efficient quantity.

Monetary Policy in Depth

Multiple choiceLevel 1
25. Monetary policy is mostly run by which part of a country?
- The central bankcorrect
- The largest supermarket
- The stock exchange
- The post office
The central bank manages the money supply and interest rates through monetary policy.
Choose all that applyLevel 2
26. Which of these are real tools a central bank can use? Select all that apply.
- Open market operations, buying and selling bonds
- The reserve requirement for bankscorrect
- The discount rate it charges bankscorrect
- Setting the price of every product in shops
- Choosing who wins the next election
Central banks use open market operations, reserve requirements, and the discount rate, not price setting.
Fill the blankLevel 2
27. When a central bank creates new money to buy large amounts of bonds, especially when rates are already very low, it is called quantitative ____.
- easingcorrect
- tightening
- saving
- trading
Quantitative easing buys assets with newly created money to add support when rates are near zero.
Match the pairsLevel 2
28. Match each monetary policy idea to what it does.
Answer: Central bank = Runs the country's monetary policy; Open market operations = Buying and selling government bonds; Lower interest rates = Encourage borrowing and spending; Quantitative easing = Creating money to buy bonds
Each item is a way the central bank steers money and spending.
Odd one outLevel 3
29. Which of these is a FISCAL policy tool, not a monetary policy tool?
- Changing income tax ratescorrect
- Open market operations
- The discount rate
- The reserve requirement
Taxes and government spending are fiscal tools set by the government, while the others are monetary tools of the central bank.
Guess the numberLevel 4
30. If the reserve requirement is 20% (0.20), what is the simple money multiplier, found as 1 divided by the reserve ratio?
Answer: 5
The simple money multiplier is 1 / 0.20, which equals 5.

Where these questions come from. Each unit starts as a plan of the concepts it should cover and the difficulty it should span. Questions are written against that plan with AI assistance, then checked by a validator that rejects anything without a single defensible answer, an explanation, or plausible wrong options. How we write questions sets out the whole process, and corrections are fixed in the bank and reach the site and the app the same day.

How you practise

This unit mixes 10 different question formats, so you are recalling and applying rather than recognising the same layout every time.

Choose all that apply
Fill the blank
Guess the number
Match the pairs
Multiple choice
Odd one out
Put in order
Sort into groups
True or false
Type the answer

Practise Advanced Economics

120 questions across 23 steps. Start with step one and crawl at your own pace.

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Read about Advanced Economics

Explainers from our blog on what this unit covers. Each one ends with real questions from the bank.

More units in Economics

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