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AP Micro: POL (BI), POL‑2 (EU), POL‑4 (EU), POL‑5 (EU)

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About this unit

In this unit, we start exploring the arguments for and against government intervention in an otherwise competitive market. We examine the conditions for allocative efficiency, using the marginal social benefit and marginal social cost principle, and the ways in which externalities, public goods, and the market distribution of income create market failures even in competitive free-market economies. In addition, we study the effectiveness of government policies such as subsidies, taxes, quantity controls, and public provision of goods and services, which are designed to correct market failures and achieve allocative efficiency.

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Market failure and the role of government | Khan Academy

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In this unit, we start exploring the arguments for and against government intervention in an otherwise competitive market. We examine the conditions for allocative efficiency, using the marginal social benefit and marginal social cost principle, and the ways in which externalities, public goods, and the market distribution of income create market failures even in competitive free-market economies.

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AP Microeconomics: 6.4 The Effects of Government Intervention in Different Market Structures

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APMic U6 L3 effects of government intervention in different market structures

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There is no Quizlet for this lesson because the lesson is really a combination of a variety of different lessons.

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1. What is the difference between taxes and subsidies? Subsidies and welfare?

2. When is it possible for per-unit taxes and subsidies to reduce deadweight loss?

3. What are the short-term and long-term effects of lump-sum taxes on a market?

4. What is wrong with price controls?

5. What are ways that governments can intervene in imperfectly competitive markets and improve them?

6. How should government regulate a natural monopoly?

7. How does antitrust policy work?

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Define government policy interventions in imperfect markets.

Explain (using graphs where appropriate) how government policies can alter market outcomes in perfectly and imperfectly competitive markets.

Calculate (using data from a graph or table as appropriate) changes in market outcomes resulting from government policies in perfectly competitive and imperfectly competitive markets.

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In imperfect markets, well-designed government policy can reduce waste.

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Per-unit taxes and subsidies affect the total price consumers pay, net price firms receive, equilibrium quantity, consumer and producer surpluses, deadweight loss, and government revenue or cost. The impact of change depends on the price elasticity of demand and supply.

Lump-sum taxes and lump-sum subsidies do not change either marginal cost or marginal benefit; only fixed costs will be affected.

Binding price ceilings and floors affect prices and quantities differently depending on the market structures (perfect competition, monopoly, monopolistic competition, and monopsony) and the price elasticities of supply and demand.

Government intervention in imperfect markets can increase efficiency if the policy correctly addresses the incentives that led to the market failure.

Government can use price regulation to address inefficiency due to monopoly.

A natural monopoly will require a lumpsum subsidy to produce at the allocatively efficient quantity.

Governments use antitrust policy in an attempt to make markets more competitive.