| Steven M. Reff Economics Lecturer University of Arizona (2007 - 2016) The 2015 University of Arizona Five-Star Faculty Award Steven Reff's Resume |
Unit 6: Market Failure & the Role of Government
• Topic 6.1 Socially Efficient & Inefficient Market Outcomes
• Topic 6.2 Externalities
• Topic 6.3 Public and Private Goods
• Topic 6.4 The Effect of Government Intervention in Different Market Structures
• Topic 6.5 Inequality
• Topic 6.1 Socially Efficient & Inefficient Market Outcomes
• Topic 6.2 Externalities
• Topic 6.3 Public and Private Goods
• Topic 6.4 The Effect of Government Intervention in Different Market Structures
• Topic 6.5 Inequality
| (8% – 13% of the exam) |
| 9 - 11 class periods |
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| Unit 6 Market Failure & the Role of Government |
| Week 13 |
Below are lessons for Unit 6: Topics 6.1 - 6.5 aligned to the AP® Microeconomics CED.
You will have textbook readings, short videos with 3 multiple choice questions, workbook
assignments, multiple choice questions, "free" response questions and much more.
These resources can be displayed on the instructor's projection system inside the classroom,
or the instructor can copy the links and give to the students as homework.
Link to the AP® Microeconomics CED (Course and Exam Description) to see in-depth
coverage on each of the topics listed below for Unit 6: Market Failure & the Role of Government.
You will have textbook readings, short videos with 3 multiple choice questions, workbook
assignments, multiple choice questions, "free" response questions and much more.
These resources can be displayed on the instructor's projection system inside the classroom,
or the instructor can copy the links and give to the students as homework.
Link to the AP® Microeconomics CED (Course and Exam Description) to see in-depth
coverage on each of the topics listed below for Unit 6: Market Failure & the Role of Government.
| Principles of Microeconomics |
Topic 6.1 Socially Efficient & Inefficient Market Outcomes
| Day 1: Week 13 |
| Day 2: Week 13 |
Topic 6.3 Public and Private Goods
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| Day 3: Week 13 |
| eWorkbook Activities Interactive: |
Topic 6.2 Externalities
| eVideos -- Short Videos: |
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Topic 6.4 The Effect of Gov. Intervention in Different Market Structures
| Day 4: Week 13 |
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Topic 6.5 Inequality
| Day 5: Week 13 |
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| eVideos -- Short Videos: |
| (3 min. or less, along with 3 multiple choice questions) |
| eTextbook Reading |
| eWorkbook Activities Interactive: |
| eVideos -- Short Videos: |
| eTextbook Reading |
| eWorkbook Activities Interactive: |
| eVideos -- Short Videos: |
| (3 min. or less, along with 3 multiple choice questions) |
| eTextbook Reading |
| eWorkbook Activities Interactive: |
| eVideos -- Short Video: |
| eVideos -- Short Videos: |
| (3 min. or less, along with 3 multiple choice questions) |
| eTextbook Reading |
The socially optimal quantity of a good occurs
where the marginal social benefit of consuming
the last unit equals the marginal social cost of
producing that last unit, thus maximizing total
economic surplus.
Externalities are either positive or negative and
arise from lack of well-defined property rights
and/or high transaction costs.
In the presence of externalities, rational agents
respond to private costs and benefits and not
to external costs and benefits.
Rational agents have the incentive to free ride
when a good is non-excludable.
Policies that address positive or negative
externalities include taxes/subsidies,
environmental regulation, public provision,
the assignment of property rights, and the
reassignment of property rights through
private transactions.
where the marginal social benefit of consuming
the last unit equals the marginal social cost of
producing that last unit, thus maximizing total
economic surplus.
Externalities are either positive or negative and
arise from lack of well-defined property rights
and/or high transaction costs.
In the presence of externalities, rational agents
respond to private costs and benefits and not
to external costs and benefits.
Rational agents have the incentive to free ride
when a good is non-excludable.
Policies that address positive or negative
externalities include taxes/subsidies,
environmental regulation, public provision,
the assignment of property rights, and the
reassignment of property rights through
private transactions.
The optimal quantity of a good occurs where the marginal benefit of
consuming the last unit equals the marginal cost of producing that last
unit, thus maximizing total economic surplus.
The market equilibrium quantity is equal to the socially optimal quantity
only when all social benefits and costs are internalized by individuals in
the market. Total economic surplus is maximized at that quantity.
Rational agents can pursue private actions to exploit or exercise market
characteristics known as market power.
Rational agents make optimal decisions by equating private marginal
benefits and private marginal costs that can result in market inefficiencies.
Policymakers use cost-benefit analysis to evaluate different actions to
reduce or eliminate market inefficiencies.These Market inefficiencies can be
eliminated by designing policies that equate marginal social benefit
with marginal social cost.
Equilibrium allocations can deviate from efficient allocations due to situations
such as monopoly; oligopoly; monopolistic competition; negative and positive
externalities in production or consumption; asymmetric information; and
insufficient production of public goods.
Producing any non-efficient quantity results in deadweight loss.
consuming the last unit equals the marginal cost of producing that last
unit, thus maximizing total economic surplus.
The market equilibrium quantity is equal to the socially optimal quantity
only when all social benefits and costs are internalized by individuals in
the market. Total economic surplus is maximized at that quantity.
Rational agents can pursue private actions to exploit or exercise market
characteristics known as market power.
Rational agents make optimal decisions by equating private marginal
benefits and private marginal costs that can result in market inefficiencies.
Policymakers use cost-benefit analysis to evaluate different actions to
reduce or eliminate market inefficiencies.These Market inefficiencies can be
eliminated by designing policies that equate marginal social benefit
with marginal social cost.
Equilibrium allocations can deviate from efficient allocations due to situations
such as monopoly; oligopoly; monopolistic competition; negative and positive
externalities in production or consumption; asymmetric information; and
insufficient production of public goods.
Producing any non-efficient quantity results in deadweight loss.
Private goods are rival and excludable, and
public goods are non-rival and non-excludable.
Due to the free rider problem, private
individuals usually lack the incentive to
produce public goods, leaving government as
the only producer.
Governments sometimes choose to produce
private goods, such as educational services,
and to allow free access to them.
Some natural resources are, by their nature,
non-excludable and rival and therefore
open access. Private individuals inefficiently
overconsume such resources.
public goods are non-rival and non-excludable.
Due to the free rider problem, private
individuals usually lack the incentive to
produce public goods, leaving government as
the only producer.
Governments sometimes choose to produce
private goods, such as educational services,
and to allow free access to them.
Some natural resources are, by their nature,
non-excludable and rival and therefore
open access. Private individuals inefficiently
overconsume such resources.
Per-unit taxes and subsidies affect the
total price consumers pay, net price firms
receive, equilibrium quantity, consumer and
producer surpluses, deadweight loss, and
government revenue or cost. The impact of
change depends on the price elasticity of
demand and supply.
Lump-sum taxes and lump-sum subsidies do
not change either marginal cost or marginal
benefit; only fixed costs will be affected.
Binding price ceilings and floors affect prices
and quantities differently depending on the
market structures (perfect competition,
monopoly, monopolistic competition, and
monopsony) and the price elasticities of
supply and demand.
Government intervention in imperfect
markets can increase efficiency if the policy
correctly addresses the incentives that led
to the market failure.
Government can use price regulation to
address inefficiency due to monopoly.
A natural monopoly will require a lump-sum
subsidy to produce at the allocatively
efficient quantity.
Governments use antitrust policy in an
attempt to make markets more competitive.
X Exclusion:
A graph of inefficiency and policy due to
collusion is beyond the scope of the course
andthe AP Exam.
total price consumers pay, net price firms
receive, equilibrium quantity, consumer and
producer surpluses, deadweight loss, and
government revenue or cost. The impact of
change depends on the price elasticity of
demand and supply.
Lump-sum taxes and lump-sum subsidies do
not change either marginal cost or marginal
benefit; only fixed costs will be affected.
Binding price ceilings and floors affect prices
and quantities differently depending on the
market structures (perfect competition,
monopoly, monopolistic competition, and
monopsony) and the price elasticities of
supply and demand.
Government intervention in imperfect
markets can increase efficiency if the policy
correctly addresses the incentives that led
to the market failure.
Government can use price regulation to
address inefficiency due to monopoly.
A natural monopoly will require a lump-sum
subsidy to produce at the allocatively
efficient quantity.
Governments use antitrust policy in an
attempt to make markets more competitive.
X Exclusion:
A graph of inefficiency and policy due to
collusion is beyond the scope of the course
andthe AP Exam.
Income levels and poverty rates vary greatly
both across and within groups (e.g., age,
gender, race) and countries.
The Lorenz curve and Gini coefficient are
used to represent the degree of inequality
in distributions and to compare distributions
across different countries, policies, or time
periods.
X Exclusion:
Drawing the Lorenz curve and calculating
Gini coefficients are beyond the scope of
the course and the AP Exam.
both across and within groups (e.g., age,
gender, race) and countries.
The Lorenz curve and Gini coefficient are
used to represent the degree of inequality
in distributions and to compare distributions
across different countries, policies, or time
periods.
X Exclusion:
Drawing the Lorenz curve and calculating
Gini coefficients are beyond the scope of
the course and the AP Exam.
| Prior to 2002, students only had to know about Negative PRODUCTION Externalities and Positive CONSUMPTION Externalities. |
| Required currently and prior to 2022. |
| NEW as of 2022 and required currently. |
The eTextbook chapter below was written prior to 2005
when only two externalities were required: Negative
PRODUCTION Externality and Positive CONSUMPTION
Externality.
when only two externalities were required: Negative
PRODUCTION Externality and Positive CONSUMPTION
Externality.
| Remember, you still have all of the resources and assessments that The College Board® provides for you and your students. |
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(Minimize Screen)