Analyze AP Microeconomics Unit 6 through social efficiency, deadweight loss, externalities, and government policies that address market failure.
Voda Reservoir is a profit-maximizing firm and the only producer of bottled water in a country.
Currently, Voda Reservoir is earning negative economic profit.
Suppose the government requires Voda Reservoir to produce the socially optimal quantity of
bottled water. On your graph in part A, show the socially optimal quantity of bottled water,
labeled .
Suppose instead the government grants a per-unit subsidy to Voda Reservoir. What will
happen to Voda Reservoir's profit-maximizing quantity of bottled water? Explain.
Anderson Company is a typical firm that manufactures Good G in a constant-cost, perfectly competitive market. Anderson Company is currently earning positive economic profit.
On your graphs in part (b), show what will happen to each of the following if the market for Good G adjusts to long-run equilibrium.
The market equilibrium price and quantity, labeled and , respectively
Assume the production of Good G creates benefits for third parties.
Given this situation, will the market equilibrium quantity be greater than, less than, or equal to the allocatively efficient quantity? Explain.
The government takes an action that corrects the externality in the market for Good G. As a result of the government's action, does total economic surplus increase, decrease, or stay the same? Explain.
Begin your response to this question at the top of a new page in the separate Free Response booklet and fill in the appropriate circle at the top of each page to indicate the question number.
Which of the following is the best example of a pure public good?
National defense
Internet service
Garbage pick-up services
A publicly funded sports stadium
The U.S. Postal Service
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