Market Failure & Government

Name: AP Microeconomics Unit 6: Market Failure & Government
Availability: InStock

8–13% of the exam3 lessons · 41 min

What this unit covers

The topics below follow the published Micro course framework for Unit 6. This unit is worth 8–13% of the exam, so budget your time against that rather than against how long the unit takes to teach.

ExternalitiesPublic goodsTaxesIncome distribution

Lessons in this unit

Externalities14 min · 3 objectivesDistinguish negative from positive externalities and their efficiency effects · Compare the market outcome with the socially optimal outcome · Explain how taxes and subsidies correct externalities
Public Goods & Market Failure13 min · 3 objectivesDistinguish public goods from private goods using rivalry and excludability · Explain the free-rider problem and why markets underprovide public goods · Identify other sources of market failure, including imperfect information
Taxes, Tax Incidence & Income Distribution14 min · 3 objectivesAnalyze how a per-unit tax affects price, quantity, and total surplus · Determine tax incidence using the relative elasticities of supply and demand · Interpret the Lorenz curve and Gini coefficient as measures of income inequality

Formulas in Unit 6

Efficiency and externalities

Social optimum: MSB = MSC · Negative externality: MSC > MPC → overproduction · Positive externality: MSB > MPB → underproduction

A corrective tax equal to the external cost fixes overproduction; a subsidy equal to the external benefit fixes underproduction. Both push the market quantity to where MSB = MSC.

Classifying goods

Private: rival + excludable · Public: non-rival + non-excludable · Common resource: rival + non-excludable · Club: non-rival + excludable

Non-excludability drives the free-rider problem (public goods underprovided); rivalry plus non-excludability drives the tragedy of the commons (common resources overused).

Tax incidence and inequality measures

Burden falls more on the more inelastic side · Gini = 0 (perfect equality) → 1 (perfect inequality)

Tax revenue = per-unit tax × quantity traded after the tax. The Lorenz curve bowing farther from the 45° line means a higher Gini coefficient.

What examiners penalize here

On externality graphs, draw both the private and social curves (MPC vs. MSC, or MPB vs. MSB), mark the market quantity and the optimal quantity where **MSB = MSC**, and shade the **deadweight-loss triangle** between them. State the corrective tax or subsidy as the **vertical distance** equal to the external cost or benefit.
When a question describes a good, test it on **both** rivalry and excludability before classifying it. The **free-rider problem** stems from **non-excludability**; the **tragedy of the commons** stems from rivalry combined with non-excludability. Naming the right property earns the point.
On tax graphs, show the tax as a **vertical wedge** between the price buyers pay and sellers receive, then identify each side’s share and the **deadweight-loss triangle**. For inequality, remember: Lorenz curve farther from the 45° line ⇒ **higher Gini ⇒ more inequality**.

Practice Micro

Our practice bank is drawn from across the whole course rather than filtered to one unit, which is closer to how the exam asks anyway — it will not tell you which unit a question is testing.

26 practice questionsEvery one with a written explanation FRQ trainerWritten answers scored against the rubric Micro study guideAll units, weights and score data in one place All 6 Micro unitsThe full course

Questions about this unit

How much of the AP Microeconomics exam is Unit 6?

Unit 6, Market Failure & Government, is worth 8–13% of the Micro multiple-choice section according to the published course framework. Across all 6 units that makes it a substantial share — heavier than an even split would give it.

What topics are covered in Micro Unit 6?

Market Failure & Government covers Externalities, Public goods, Taxes and Income distribution.

How should I study Micro Unit 6?

Read the 3 lessons below first — about 40 minutes — then work practice questions on these topics. Finish with practice questions and read the explanation for every one you get right by elimination as well as the ones you miss.

All 6 units of AP Microeconomics

Unit names, topics and exam weights follow the published College Board course framework for AP Microeconomics. AP® is a trademark registered by the College Board, which does not endorse this site.