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

1. In the absence of government intervention, what quantity will the private market produce, and why?

2. The existence of the externality causes the market to be inefficient. The deadweight loss resulting from this inefficiency is represented by the area

3. To correct for this market failure and achieve the socially optimal level of output, the government could impose a per-unit tax equal to

4. Which of the following statements is consistent with the graph?

5. At the market equilibrium quantity of Q_MKT, which of the following is true?

6. To achieve the socially optimal quantity, Q_OPT, which of the following government policies would be most effective?

7. A market outcome is considered socially efficient when

8. National defense is often cited as a classic example of a public good because it is

9. The free-rider problem occurs when

10. The Coase theorem suggests that private markets can solve externality problems on their own if

11. A government imposes a new tax on a perfectly competitive firm. If the tax is a lump-sum tax, it will increase the firm's

12. The graph shown is a Lorenz curve. What does the point on the Lorenz curve representing 40 percent on the horizontal axis indicate?

13. The Gini coefficient is a measure of income inequality. Using the areas labeled in the graph, the Gini coefficient is calculated as

14. Which of the following would cause a country's Lorenz curve to move closer to the line of perfect equality?

15. A common resource, such as a fishery in the open ocean, is often subject to overconsumption. This market failure occurs because the resource is