AP Microeconomics 6.1.2: Social Efficiency

Evaluate whether government intervention improves efficiency by comparing marginal social benefits, costs, and intervention costs.

[Maximum number: 1]

Figure for Question POL-2.B—Explain (using graphs where appropriate) how private incentives can lead to actions by rational agents that are socially… question 1 — AP Microeconomics

The diagram provided illustrates the marginal pri vate benefit (MPB), marginal social benefit (MSB), marginal private cost (MPC), and marginal social cost (MSC) measured in dollars for a competitive market. Assume that the goal of the government is to in crease efficiency in the market. The cost of a govern ment intervention that increases market output from $Q_{1}$ to $Q_{2}$ is $\$ 1.2$ million. The intervention will defi nitely improve market efficiency if the area of

A

A is greater than $\$ 1.2$ million

B

B is less than $\$ 1.2$ million

C

C is less than $\$ 1.2$ million

D

A+B is greater than or equal to $\$ 1.2$ million

E

B+C is greater than or equal to $\$ 1.2$ million

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POL-2.B—Explain (using graphs where appropriate) how private incentives can lead to actions by rational agents that are socially… question 1