AP MICROECONOMICS UNIT #3



AP MICROECONOMICS UNIT #5

MARKET FAILURE AND THE ROLE OF GOVERNMENT

GEORGIA STANDARDS OF EXCELLENCE IN THIS UNIT

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COLLEGE BOARD STANDARDS IN THIS UNIT

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IV. Market Failure and the Role of Government (12–18%)

A. Externalities

1. Marginal social benefit and marginal social cost

2. Positive externalities

3. Negative externalities

4. Remedies

B. Public goods

1. Public versus private goods

2. Provision of public goods

C. Public policy to promote competition

1. Antitrust policy

2. Regulation

D. Income distribution

1. Equity

2. Sources and measures of income inequality

READING ASSIGNMENTS

1. Public Goods: Module 76, pp. 752-760.

2. Introduction to Externalities: Module 74, pp. 733-738.

3. Externalities and Public Policy: Module 75, pp. 740-750.

4. Public Policy to Promote Competition: Module 77, pp. 763-767.

5. Income Inequality and Income Distribution: Module 78, pp. 770-782

LECTURES

1. Public vs. Private Goods.

2. Externalities #1.

3. Externalities #2.

4. Promoting Competition.

5. Income Inequality.

UNIT PROBLEM SET: due the day before the test; will be provided to you

QUIZZES

1. Types of goods: private/public/common/natural monopoly.

2. Externalities.

3. Antitrust legislation and government regulation of monopolies.

4. Income distribution.

TEST PRACTICE: will work in class the day before the test

1. Sample Multiple Choice.

2. Sample Free Response. Done in class during the unit and as quizzes.

TEST

Unit Test #5 including multiple choice and FRQs

VOCABULARY

public good

private good

rivalry

excludability

externality

positive externality

negative externality

socially optimal output level

internalizing an externality

private cost

private value

Coase theorem

transaction costs

command-and-control policies

market-based policies

Pigovian tax

pollution permits

free-rider

cost-benefit analysis

tragedy of the commons

moral hazard problem

antitrust policy

regulation

horizontal merger

vertical merger

conglomerate

Sherman Act

Clayton Act

equity

income distribution

income inequality

Lorenz curve

Gini ratio (Index)

Income mobility

Non-cash transfers

Poverty rate

Entitlement programs

Social Security

Medicare

Unemployment compensation

GRAPH/CHART/APPLICATION SKILLS

1. Identify the market quantity and price from supply and demand graphs.

2. Identify the socially optimal quantity and price from supply and demand graphs.

3. Locate the deadweight loss associated with positive and negative externalities.

4. Evaluate the impact of taxes and subsidies on companies’ production levels.

5. Analyze government regulation strategies for monopolies.

6. Interpret a Lorenz Curve.

7. Interpret a Gini Index.

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