AP Microeconomics Unit 6 practice questions
Try 10 multiple-choice questions from Unit 6 here. Pick an answer to see why it's right or wrong, then take the timed test above for a full AP-style set.
Question 1
A fishing ground is a common resource with open access. Two changes occur simultaneously: the global demand for fish rises, and fishing technology becomes more efficient. Without regulation, what is the combined effect on the resource's scarcity?
The depletion of the fish stock accelerates due to increased incentives and ability to harvest
The fish stock declines, but more slowly because higher prices create incentives for some fishing communities to voluntarily limit their catch
The fish stock remains relatively stable because increased demand is offset by the reduced fishing effort from higher operating costs associated with efficient technology
The depletion of the fish stock accelerates, but only because global demand increases while efficient technology has no additional effect on harvest rates
The fish stock remains stable because efficient technology reduces the cost per unit harvested, offsetting demand increases
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Answer: (A)
Combining the variables reveals a reinforced negative outcome. Higher demand raises prices (increasing the incentive to fish), while better technology lowers costs (increasing the ability to fish). Both factors lead to faster over-extraction.
Question 2
Why does a pure market economy typically fail to produce the efficient quantity of national defense?
Firms underproduce because they cannot exclude non-payers from benefits
Firms underproduce because they cannot capture all consumer surplus from the service
Firms underproduce because they lack information about consumer demand for national defense
Firms underproduce because they cannot prevent free-riding on their production efforts
Firms underproduce because consumers lack information about national defense benefits
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Answer: (A)
National defense is a public good: once it is provided, no one can be excluded from its protection, so people have no incentive to pay voluntarily. This non-excludability causes firms to underproduce because they cannot capture revenue from everyone who benefits.
Question 3
A paper mill in a mixed economy produces a chemical byproduct that pollutes a nearby river. Which government action would best correct this resource allocation issue to achieve efficiency?
Subsidize the mill's production to lower consumer prices
Tax the mill's pollution to internalize the social costs
Set price ceilings on paper to ensure consumer affordability
Nationalize the mill to maximize production output targets
Regulate the mill's production output to reduce total pollution
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Answer: (B)
Applying the solution for negative externalities explains how to restore efficiency. A tax equal to the marginal external cost forces the firm to account for the pollution, aligning private cost with social cost.
Question 4
A society operates under a mixed economic system where national defense is funded through taxation. If the government stops providing national defense and relies solely on voluntary market transactions, what will be the result?
National defense will be underproduced due to the free-rider problem with non-excludable goods.
National defense will be overproduced as firms seek to maximize profit from security services.
National defense will be produced optimally as consumer demand accurately reflects true value.
National defense will be produced efficiently as competition among private firms lowers costs.
National defense will be optimally produced as private firms compete to provide the best security services.
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Answer: (A)
Recognizing the characteristics of public goods reveals that private markets fail to produce them efficiently because individuals can benefit without paying.
Question 5
A country replaces a progressive income tax system with a lump-sum tax on all citizens to fund public services. Based on economic principles, how will this change influence efficiency and equity?
Efficiency increases due to fewer distortions, but income inequality likely increases.
Efficiency decreases due to lower work incentives, but income inequality likely decreases.
Efficiency increases due to higher revenue, and income inequality likely decreases.
Efficiency decreases due to reduced consumption, and income inequality likely increases.
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Answer: (A)
Applying tax theory reveals that lump-sum taxes do not distort marginal decision-making (increasing efficiency) but take a higher percentage of income from the poor (decreasing equity).
Question 6
In an unregulated market economy, a chemical plant releases waste into a nearby river, damaging local fisheries. What is the outcome regarding the allocation of resources to chemical production?
Chemicals are overproduced because the firm does not pay the full social cost of production.
Chemicals are underproduced because the firm faces higher costs due to environmental damage.
Chemicals are produced optimally because the market price reflects all costs of production.
Chemicals are overproduced because the government subsidizes industries that create jobs.
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Answer: (A)
Using the model of externalities, when negative external costs are ignored by the market, the marginal private cost is lower than the social cost, leading to overproduction.
Question 7
Private opportunity cost and social opportunity cost both measure foregone alternatives, but they differ when externalities are present. Which statement best describes this difference?
Social cost includes both private costs and external costs borne by third parties.
Private cost includes both social costs and external costs borne by third parties.
Social cost includes only external costs and excludes private costs to the firm.
Private cost includes only external costs and excludes social costs to the firm.
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Answer: (A)
Describing the difference requires aggregating costs. Social opportunity cost accounts for the full resource use of society, which includes the private costs to the decision-maker plus any costs imposed on others (externalities).
Question 8
A factory produces chemicals where the private marginal cost is $20 and the external cost is $10 per unit. If the marginal benefit to consumers is $25, what is the efficient outcome?
Produce the unit, because the marginal benefit exceeds the private cost
Produce the unit, because the external cost is less than the private cost
Do not produce, because the social cost exceeds the marginal benefit
Do not produce, because the external cost exceeds the marginal benefit
Produce the unit, because the marginal benefit exceeds the external cost
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Answer: (C)
Calculating marginal social cost ($20 private + $10 external = $30) shows it exceeds marginal benefit ($25), making production inefficient.
Question 9
A limitation of using the sum of consumer and producer surplus to measure total social welfare is that this calculation assumes:
No external costs or benefits exist, meaning private costs and benefits reflect all social costs and benefits.
Perfect information exists in all markets, meaning private costs and benefits reflect all social costs and benefits.
All firms operate in perfectly competitive markets, meaning private costs and benefits reflect all social costs and benefits.
All consumers have identical preferences and income levels, meaning private costs and benefits reflect all social costs and benefits.
All consumers have identical preferences, meaning private costs and benefits reflect all social costs and benefits.
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Answer: (A)
Identifying model limitations requires understanding assumptions. The standard surplus calculation assumes the market demand and supply curves capture all social values; if externalities exist, the private surplus calculation fails to reflect true social welfare.
Question 10
Which of the following conditions defines a socially efficient allocation of resources in a market?
Marginal social benefit equals marginal social cost
Marginal private benefit equals marginal private cost
Total social benefit is maximized regardless of cost
Total social cost is minimized regardless of benefit
Consumer surplus is maximized in the market
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Answer: (A)
Social efficiency occurs when resources are allocated such that the additional benefit to society of the last unit produced equals the additional cost to society.
What's on the AP Microeconomics Unit 6 practice test
The standard version takes about 63 minutes and follows the timing and directions of the AP exam, sized to one unit:
- 20 Multiple Choice Questions (23 minutes)
- 1 FRQ – FRQ 1 – Long (20 minutes)
- 1 FRQ – FRQ 2 – Short (20 minutes)
Questions are drawn from 1057 multiple-choice questions and 38 FRQs written for Unit 6, Market Failure and the Role of Government.
Practice AP Microeconomics Unit 6 FRQs
Answer the unit's free-response questions one at a time and get a score on every part.
- FRQ 1 – Long (4 questions)
- FRQ 2 – Short (15 questions)
- FRQ 3 – Short (19 questions)
Review Unit 6 before you start
- 6.1 Socially Efficient and Inefficient Market Outcomes
- 6.2 Externalities
- 6.3 Public and Private Goods
- 6.4 The Effects of Government Intervention in Different Market Structures
- 6.5 Inequality