Market Failures & Government | AP Micro MV 2025-2026

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10 Terms

1
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Market Failure

When the free market doesn't allocate resources efficiently.

2
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Negative Externality

Harm to third parties (e.g., pollution); leads to overproduction.

3
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Positive Externality

Benefit to third parties (e.g., vaccines); leads to underproduction.

4
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Public Goods

Non-rival and non-excludable; lead to free rider problems.

5
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Free Rider

Someone who benefits from a good without paying.

6
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Deadweight Loss

Lost efficiency due to price controls or monopolies.

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Progressive Tax

Tax rate increases with income (e.g., income tax).

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Proportional Tax

Constant tax rate regardless of income (e.g., flat tax).

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Regressive Tax

Tax rate decreases as income rises (e.g., sales tax).

10
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Lorenz Curve & Gini Ratio

Visual + numerical methods of measuring income inequality.