AP Micro Unit 6 Review: Market Failure and the Role of Government
AP Micro Unit 6 covers externalities, public goods, government intervention, and income inequality. Worth 8–13% of the exam, it is small but dense with graphs — the externality diagrams (MSB/MSC) are frequent FRQ material.
What's in Unit 6
- 1Socially efficient and inefficient market outcomes
- 2Positive and negative externalities (MSB, MSC, MPB, MPC)
- 3Public goods (non-rival, non-excludable) and the free-rider problem
- 4Effects of government intervention in different market structures
- 5Income and wealth inequality (Lorenz curve, Gini coefficient)
Study this unit free on EconLearn
Externalities, public goods, and government intervention.
Full lesson, practice questions & flashcards →Free-rider problem, Pigouvian taxes, and the Coase theorem.
Full lesson, practice questions & flashcards →What to master for the exam
- Draw negative externality (MSC above MPC, market overproduces, tax fixes it) and positive externality (MSB above MPB, market underproduces, subsidy fixes it) graphs.
- Shade deadweight loss between the market quantity and the socially optimal quantity.
- Classify goods by rivalry and excludability; public goods fail markets because of free riders.
- Read a Lorenz curve: farther from the diagonal = more inequality; Gini closer to 1 = more unequal.
AP Micro Unit 6: common questions
What is on AP Micro Unit 6?
Externalities (with the MSB/MSC graphs and corrective taxes/subsidies), public vs private goods and the free-rider problem, the effects of government intervention, and income inequality measured with the Lorenz curve and Gini coefficient. It is worth 8–13% of the AP Micro exam.
How do you fix a negative externality on a graph?
A negative externality means marginal social cost sits above marginal private cost, so the market quantity exceeds the socially optimal quantity. A per-unit tax equal to the external cost shifts the private cost curve up onto MSC, moving output back to the social optimum and eliminating the deadweight loss.