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AP Microeconomics › Unit 6

AP Microeconomics Unit 6: Market Failure and the Role of Government

8 to 13% of the exam · 180 practice questions · 12 free-response questions

Markets do not always produce the efficient amount. Unit 6 covers externalities, public goods, and inequality, plus how taxes, subsidies, and regulation can correct or distort outcomes. You will compare marginal social benefit with marginal social cost, shade deadweight loss, and choose a corrective tax or subsidy. Questions on inequality may ask you to read a Lorenz curve or interpret a Gini coefficient. Students often mislabel public goods, which must be both nonrival and nonexcludable. Another mistake is placing the socially optimal quantity where the private curves cross.

Practice this unit

White belt covers core terms and foundational ideas, Regular is set at exam level, and Black belt has harder multi-step questions.

Topics in this unit

• 6.1 Socially Efficient and Inefficient Market Outcomes (27 questions)
• 6.2 Externalities (51 questions)
• 6.3 Public and Private Goods (30 questions)
• 6.4 The Effects of Government Intervention in Different Market Structures (37 questions)
• 6.5 Inequality (35 questions)

Free-response questions

• Steel and Pollution: A Negative Externality (Long question, 10 points)
• Vaccinations and Spillover Benefits (Long question, 10 points)
• Regulating a Natural Monopoly (Short question, 5 points)
• Four Goods (Short question, 5 points)
• Cigarettes and Secondhand Smoke (Short question, 5 points)
• Cleaning Up a Factory (Short question, 5 points)
• A Competitive Polluter and a Per-Unit Tax (Long question, 10 points)
• Spillovers in Two Markets (Short question, 5 points)
• A Minimum Wage in a Monopsony (Short question, 5 points)
• A Monopoly That Pollutes (Long question, 10 points)
• Income Taxes and the Lorenz Curve (Short question, 5 points)
• Paying for a Public Good (Short question, 5 points)

Sample questions

These are taken from the Regular set, with the answer and explanation shown.

Topic 6.1 Socially Efficient and Inefficient Market Outcomes

1. Total economic surplus is maximized when

1. Athe most units possible are produced with the available resources
2. Bfirms earn the highest profits
3. Cconsumers pay the lowest prices
4. Dgovernment revenue is highest
5. Eexactly the units with MSB ≥ MSC are produced

Answer: E. Producing exactly the units whose social benefit covers their social cost maximizes the total gain to society.

Common trap: Equating efficiency with the most output or lowest price.

Topic 6.3 Public and Private Goods

2. A crowded public highway with no tolls is best described as

1. Aexcludable but nonrival, like a club good
2. Bnonrival and nonexcludable, like a pure public good
3. Cexcludable and rival, like a private good
4. Drival but nonexcludable, like a common resource
5. Ea natural monopoly

Answer: D. No tolls means no one is excluded, but at rush hour each extra car slows others down, so use is rival.

Common trap: Calling it a pure public good regardless of congestion.

Topic 6.5 Inequality

3. Which of the following is an example of a regressive tax?

1. AA tax on luxury yachts
2. BAn income tax with rates rising from 10% to 40%
3. CA tax of 5% on all income
4. DA tax only on incomes above $1 million
5. EA tax of $200 per person regardless of income

Answer: E. A flat $200 per person is a larger share of a low income than of a high income, so it is regressive.

Common trap: Choosing a proportional or progressive tax.

Start practicing Unit 6 →