Economics (McConnell) AP Edition, 19th Edition

Chapter 5: Market Failures: Public Goods and Externalities

The content of this chapter may be included on the AP* Microeconomics exam.

After reading this chapter, you should be able to:

1. Differentiate between demand-side market failures and supply-side market failures.
2. Explain the origin of both consumer surplus and producer surplus, and explain how properly functioning markets maximize their sum, total surplus, while optimally allocating resources.
3. Describe free riding and public goods, and illustrate why private firms cannot normally produce public goods.
4. Explain how positive and negative externalities cause under- and overallocations of resources.
5. Show why we normally won't want to pay what it would cost to eliminate every last bit of a negative externality such as air pollution.

AP Chapter 05 Introduction (10.0K)