AP Microeconomics Unit 6 Review

Practice flashcards covering key concepts from the economics lecture notes related to market efficiency, externalities, public goods, government intervention, income inequality, and taxation.

What is social efficiency?

Social efficiency is when resources are allocated effectively, where MSB equals MSC.

What does MSB=MSC mean?

It means that the marginal social benefit equals the marginal social cost, indicating an allocatively efficient outcome.

What is a negative externality?

A negative externality occurs when the use of a product decreases the benefit for others, leading to MSC being greater than MPC.

What is a positive externality?

A positive externality occurs when the use of a product benefits others, which leads to MSC being less than MPC.

What causes market failure?

Market failure can be caused by market power, asymmetric information, positive and negative externalities, and insufficient production of public goods.

What are public goods?

Public goods are goods that are underproduced due to the freeloader problem, which means people can benefit without paying.

What is the freeloader problem?

The freeloader problem occurs when individuals can enjoy the benefits of a good or service without paying for it.

What is the purpose of government intervention in markets?

Government intervention aims to address inefficiencies by implementing policies like taxes, subsidies, and regulations.

Differentiate between rivalrous and nonrivalrous goods.

Rivalrous goods cannot be simultaneously consumed by others while nonrivalrous goods can be enjoyed by many without limiting consumption.

What is the Gini coefficient?

The Gini coefficient measures income inequality, where a value closer to 0 indicates more equality and a value closer to 1 indicates greater inequality.

What is a proportional tax?

A proportional tax is where everyone pays the same percentage of their income, with no impact on income distribution.

What does a progressive tax do?

A progressive tax imposes higher percentages on individuals earning higher incomes, which helps reduce income inequality.

What are some policies to address income inequality?

Policies include taxes and transfers, minimum wage laws, anti-poverty programs, income protection programs, and scholarships.

What role do antitrust laws play?

Antitrust laws promote competition and prevent the formation of monopolies through lawsuits, price controls, and subsidies.