AP Microeconomics Unit 6 Practice Test 2026 Questions Answers

Last Updated on June 10, 2026

AP Microeconomics Unit 6 Practice Test 2026 Questions and Answers. In the previous unit, we discussed the benefits of markets, including their ability to lead to the efficient allocation of resources.

However, there are situations where free markets fail to satisfy society’s wants by producing too much or too little of something. These situations are known as market failures. A market failure occurs when a market fails to provide an efficient allocation of resources, and there may be a role for government to intervene and promote a more desirable social outcome.

One argument for government involvement in a market is to increase efficiency by correcting market failures, thereby producing at the socially efficient quantity where marginal social benefit (MSB) equals marginal social cost (MSC).

AP Microeconomics Unit 6 Practice Test

AP Microeconomics Practice Test
Unit 6: Market Failure and the Role of Government
Total Items: MCQ 13
Time Limit: N/A

1) Which of the following is an example of a positive externality?

Paying to watch a basketball game

Paying to download a new game

Enjoying you neighbor’s flower garden

Enjoying loud music while disturbing your neighbors

Hearing loud construction noise next door

2) All of the following are true regarding externalities except:

marginal social cost = marginal private cost + marginal external cost.

marginal social benefit = marginal private benefit + marginal external benefit.

a per-unit subsidy is a solution to a positive externality.

if MSB > MSC, it is referring to a positive externality.

the socially efficient production quantity is where MPB = MPC.

3) If there is a negative externality associated with a firm’s production of a private good, which of the following is an action by government that would most likely move the market to an efficient outcome?

Shut down the firm

Give the firm a per-unit subsidy

Place a per-unit tax on the firm

Relocate the firm

None of the above

4) One reason public goods are underproduced is because they cause free riders. What problem do free riders cause?

Binding price ceilings

Income inequality

Positive externalities

Smaller market demand

Increased market demand

5) If there is a positive externality associated with the production of a private good, which of the following is an action of government that would most likely move the market to an efficient outcome?

Shut down the firm

Give the firm a per-unit subsidy

Place a per-unit tax on the firm

Relocate the firm

None of the above

Suppose the supply and demand for cotton in the United States are represented by curves S and D respectively in the figure above. Also assume that the world supply for cotton is so large that the United States would be a “price taker” in the world market (as represented by WS). If the United States were to open its cotton market to free trade with the world, then

the domestic price of cotton would rise, and the United States would export cotton

the domestic price of cotton would fall, and the United States would export cotton

the domestic price of cotton would rise, and the United States would import cotton

the domestic price of cotton would fall, and the United States would import cotton

there would be no change in the price of cotton in the United States

7) For a polluting steel company, a government action to achieve an efficient outcome would produce what effect on the market equilibrium price and output?

Output would increase; price would not change.

Output would increase; price would decrease.

Output would increase; price would increase.

Output would decrease; price would decrease.

Output would decrease; price would increase.

Which of the following is true based on this graph, where lines A, B, and C each represent a country?

Country A has more income inequality than B or C.

Country B has more income inequality than A or C.

Country C has more income inequality than A or B.

Countries A, B, and C all have an equal amount of income inequality.

Country A has income inequality but less than B and C.

9) If there are positive externalities present when a good is produced, which of the following is true?

The marginal social benefit is greater than the marginal social cost, and the problem can be corrected with a per- unit subsidy.

The marginal social benefit is greater than the marginal social cost, and the problem can be corrected with a lump- sum subsidy

Consumers should be taxed so they will buy less of the good.

The marginal private benefit is greater than the marginal social benefit, and the problem can be corrected with a per-unit tax.

The marginal social benefit is less than the marginal social cost, and the problem can be corrected with a lump-sum tax.

10) Which of the following is true about a public good?

One person’s consumption means others get less.

Consumers can be excluded from its benefits by not paying for it.

One more unit of a public good for some consumers means one less unit for other consumers.

One person’s consumption does not exclude others from consuming it.

Everyone pays the same amount for the good.

11) If the government subsidizes producers in a perfectly competitive market, then

the demand for the product will increase

the demand for the product will decrease

the consumer surplus will increase

the consumer surplus will decrease

the supply will decrease

12) Which of the following government policies will likely shift the Lorenz curve outward?

Decreasing the sales tax

Making the tax system regressive

Making the tax system progressive

Making the tax system proportional

Imposing a per-unit tax on gasoline

13) If the government regulates a monopoly to produce at the allocative efficient quantity, which of the following would be true?

The monopoly would break even.

The monopoly would incur an economic loss.

The monopoly would make an economic profit.

The deadweight loss in this market would increase.

The deadweight loss in this market would decrease.

Your score is

See also:

Free AP Micro Practice Test 2026 Study Guide [PDF]