Unit 6: Market Failure and the Role of Government

Unit 6: Market Failure and the
Role of Government

Steven M. Reff
Economics Lecturer
University of Arizona
(2007 - 2016)
The 2015 University of Arizona
Five-Star Faculty Award

Principles and
Models

6.1 Socially Efficient and Inefficient Market Outcomes

6.2 Externalities

9 - 11 Class Periods

8 - 13% of exam

Resource Alignment with the Microeconomics Classroom

NOTE: This website is not a College Board sponsored website. Everything on this
website can be used by teachers or students to get a better understanding of their
college-level Microeconomics and Macroeconomics courses.

Reffonomics eTextbook: http://reffonomics.com/PublicGoods.html

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Sign Guestbook

V iew Guestbook Signings

Sign Guestbook

V iew Guestbook Signings

6.4 The Effects of Government Intervention in Different Market Structures

Interpretation

Graphing and
Visuals

Reffonomics college-level eTextbook: http://reffonomics.com/1.html
Reffonomics high school eTextbook: http://reffonomics.com/hs.html
Reffonomics eVideos for Microeconomics (3 minutes + 3 multiple choice questions): http://reffonomics.com/VideosReffonomicsMicroeconomics
Reffonomics eVideos for Macroeconomics (3 minutes + 3 multiple choice questions): http://reffonomics.com/VideosReffonomicsMacroeconomics
Reffonomics Financial Literacy Activities eWorkbook: http://reffonomics.com/FinancialLiteracy.html
Reffonomics for Teachers and Students eWorkbook: http://reffonomics.com/teachers.html
Reffonomics All the Graphs You "Need" to Know eWorkbook: http://reffonomics.com/graphing.html
Reffonomics Cell Phone Graphing eCellbook: http://reffonomics.com/cellgraphing.html
FRQs for Microeconomics eWorkbook: http://reffonomics.com/FRQMicroReview.html
FRQs for Macroeconomics eWorkbook: http://reffonomics.com/FRQMacroReview.html

"Free" Quick-Reference Resources by Reffonomics.com:

Market Inefficiency
and Public Policy

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6.3 Public and Private Goods

Interpretation

6.5 Inequality

Interactive Lessons, Movable Graphs, or Drawable Graphs:

Economics Baseball Game: L orenz Curve and Gini Coefficient

Reffonomics eTextbook: http://reffonomics.com/LorenzCurve.html

All the Graphs You "Need" to Know: L orenz Curve and Gini Coefficient

Interactive Lessons, Movable Graphs, or Drawable Graphs:

Economics Baseball Game: N egative and Positive Externalities

Reffonomics eTextbook: http://reffonomics.com/Externalities.html

All the Graphs You "Need" to Know: N egative and Positive Externalities

Cell Phone -- Graphing PPF Interactive:

Externalities with Questions: http://reffonomics.com/c17.html

Externalities with Questions: http://reffonomics.com/cc17.html

Externalities with Questions (2019): http://reffonomics.com/ccc17.html

Quick Notes by Steven Reff (There is NO sound; just notes written quickly. See if you can keep up.)

N egative and Positive Externalities

RB12: Activity 1: Market Failure Graph

RB12: Activity 2: Market Failure Graph, II

Negative Externality, Part I (2:44 minutes)

Negative Externality, Part II (2:31 minutes)

Positive Externality, Part I (2:59 minutes)

Positive Externality, Part II (1:49 minutes)

RB12: Activity 3: Market Failure (Price Searcher)

RB12: Activity 4: Market Failure Monopoly

RB12: Activity 5: Market Failure Positive Externality

RB10: Activity 6: Market Failure Monopoly

Grokkingecon Activities:

Negative Externality Lesson

T est Your Knowledge, Part II (Private Public, Collective, and Common Goods)

Positive Externality Lesson

T he Story of the Lighthouse written by Professor Don Wells

T est Your Knowledge (Private, Public, Collective, and Common Goods)

Class Starter 3-by-3 eVideos (3 min. and 3 multiple choice questions)

2011 FRQ #3

2013 FRQ #3

2010 FRQ #3

(#3 Negative Externality, DWL)

(#3 Negative/Positive Externalities)

(#3 Negative Externality, Per-Unit Tax, DWL)

Check Your Knowledge (using College Board® FRQs)

Subscribe

Check Your Knowledge (Unit 1: Basic Concepts) NOTE: This is a paid membership website www.grokkingecon.com

Market Inefficiency
and Public Policy

Interactive Lessons, Movable Graphs, or Drawable Graphs:

2018 FRQ #2

(#2 Externality, socially optimal Q, per-unit subsidy, price floor)

RB12: Activity 8: Lorenz Curve

Lorenz Curve, Part I (2:46 minutes)

Lorenz Curve, Part II (2:09 minutes)

Lorenz Curve (Gini Coefficient) (3:32 minutes)

2 6 Multiple Choice Questions: Externalities, Public Goods, Lorenz Curve, Gini Coefficient

1 3 Multiple Choice Questions Lorenz Curve and Gini Coefficient

Grokkingecon Activities:

Lorenz Curve, Part I

Lorenz Curve, Part II

Subscribe

Grokkingecon Multiple Choice Questions:

IMPORTANT NOTE: The AP Microeconomics Classroom covers the topics of lump-sum and per-unit taxes and subsidies in the last unit,
Unit 6: Market Failure and the Role of Government. The Reffonomics Classroom included these concepts in Unit 3: 3.1 Short-Run Production
Costs because of how they affect the marginal cost and/or the average total cost. Another reason for doing this--when you get to Perfect
Competition and Imperfect Competition, per-unit and lump-sum taxes and subsidies will start appearing in those "Free" Response Question.
Below is a repeat of Unit 3 explaining per-unit and lump-sum taxes and subsidies.

Principles and
Models

Market Inefficiency
and Public Policy

Class Starter 3-by-3 eVideos (3 min. and 3 multiple choice questions)

Check Your Knowledge (Unit 1: Basic Concepts) NOTE: This is a paid membership website www.grokkingecon.com

2013 FRQ #1

(Monopoly, Socially Optimal Q, DWL)

2009 FRQ #1

(Monopoly, Socially Optimal Q, DWL, Accounting vs. Economic Profit)

2008 FRQ #3

(#2 Natural Monopoly, PC, Socially Optimal Q, Profit vs. Loss)

2017 FRQ #3

(Monopoly, DWL, negative externality)

Check Your Knowledge (using College Board® FRQs)

IMPORTANT NOTE: The Check Your Knowledge AP FRQs below cannot be taught in Unit 4: Imperfect Markets (Monopoly) because to answer
the questions, the students must know about externalities and socially optimal quantity to correctly answer the questions below.

Per-Unit Tax             (2:21)
Lump-Sum Tax         (3:02)
Per-Unit Subsidy      (1:53)
Lump-Sum Subsidy (2:40)

Reffonomics eTextbook: Costs, Part II (lump-sum vs. per-unit taxes and subsidies)

Class Starter 3-by-3 eVideos (3 min. and 3 multiple choice questions)

Interactive Lessons, Movable Graphs, or Drawable Graphs:

L ump-Sum Tax Changes ATC, but NOT MC
L ump-Sum Subsidy Changes ATC, but NOT MC
P er-Unit Tax Changes both ATC and MC
P er-Unit Subsidy Changes both ATC and MC