AP Microeconomics / Unit 6: Market Failure and the Role of Government
6.2 Externalities
Notes
- Negative externality (pollution): MSC > MPC; market overproduces. Fix with a per-unit tax.
- Positive externality (vaccines, education): MSB > MPB; market underproduces. Fix with a subsidy.
Practice
With a negative externality, the market quantity is:
Ignores external costs.
Vaccines create a:
Others benefit too.
The best policy for a positive externality:
Encourages more.
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