AP Microeconomics Flashcards: The Effects of Government Intervention in Different Market Structures
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 19 cards to help you master important concepts.
How do per-unit taxes affect the price paid by consumers and the price received by firms?
A per-unit tax increases the total price consumers pay and decreases the net price firms receive for a good.
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How do per-unit taxes affect the price paid by consumers and the price received by firms?
A per-unit tax increases the total price consumers pay and decreases the net price firms receive for a good.
What is the typical result of a binding price ceiling in a perfectly competitive market?
In a perfectly competitive market, a binding price ceiling leads to a quantity demanded that exceeds the quantity supplied, causing a shortage.
How can a government use price regulation to address inefficiency from a monopoly?
A government can impose a price ceiling on a monopolist to lower the price and increase the quantity produced, moving the market outcome closer to the efficient level.
How do per-unit subsidies affect equilibrium quantity and government finances?
Per-unit subsidies increase the equilibrium quantity of a good but result in a cost to the government.
Define government policy interventions in imperfect markets.
Government policy interventions are actions taken by the government to alter market outcomes, often to address inefficiencies that arise in imperfectly competitive markets.
How can a binding price floor in a monopsony market for labor differ from its effect in a perfectly competitive labor market?
While a price floor (minimum wage) creates a surplus (unemployment) in a competitive market, in a monopsony it can potentially increase both the wage and the quantity of labor hired.
What determines the extent of the impact of a per-unit tax or subsidy?
The impact of a per-unit tax or subsidy on price and quantity depends on the price elasticity of demand and supply.
If a lump-sum subsidy is given to a firm, how does its profit-maximizing quantity of output change?
The profit-maximizing quantity does not change because a lump-sum subsidy does not affect the firm's marginal cost or marginal benefit.
How does a per-unit tax affect consumer surplus, producer surplus, and deadweight loss?
A per-unit tax reduces both consumer and producer surplus while creating deadweight loss, which represents a loss of total economic welfare.
What type of policy is necessary for a natural monopoly to produce at the allocatively efficient quantity without shutting down?
A natural monopoly will require a lump-sum subsidy to cover its economic losses if it is forced to produce at the allocatively efficient quantity where price equals marginal cost.
What is a binding price floor?
A binding price floor is a government-mandated minimum price set above the equilibrium price, which alters market prices and quantities.
What is the goal of antitrust policy?
Governments use antitrust policy as a way to make markets more competitive and prevent monopolistic behavior.
What is the primary effect of a lump-sum tax on a firm's costs?
A lump-sum tax affects a firm's fixed costs but does not change its marginal cost or marginal benefit.
How would you calculate the total government revenue generated from a per-unit tax?
To calculate government revenue, you would multiply the amount of the per-unit tax by the new equilibrium quantity sold after the tax is imposed.
What is a binding price ceiling?
A binding price ceiling is a government-mandated maximum price set below the equilibrium price, which alters market prices and quantities.
How do binding price controls (ceilings and floors) affect outcomes in different market structures?
The effects of price ceilings and floors on prices and quantities vary depending on the market structure (e.g., perfect competition vs. monopoly) and the elasticities of supply and demand.
Under what condition can government intervention in imperfect markets increase efficiency?
Government intervention can increase efficiency if the policy correctly addresses the specific incentives that led to the market failure.
Explain how government policies can alter market outcomes.
Government policies like taxes, subsidies, and price controls directly change the prices and quantities in a market, thereby altering consumer surplus, producer surplus, and overall market efficiency.
List the market outcomes affected by per-unit taxes and subsidies.
Per-unit taxes and subsidies affect consumer price, producer price, equilibrium quantity, consumer and producer surpluses, deadweight loss, and government revenue or cost.