1. To maximize social welfare when there are no externalities, __________ must be equal to __________.
a. private costs; social costs
b. private costs; social benefits
c. marginal private costs; marginal private benefits
d. social benefits; private benefits
e. Answers a, c, and d are correct.
2. Which type of approach does the Environmental Protection Agency take toward resolving externality problems?
A. public sector
B. Coasian bargaining
C. military action
D. Both a and b are correct.
E. None of the answers is correct.
3. In private equilibrium, a positive production externality will lead to __________; a negative consumption externality will lead to ___________.
A. the socially efficient amount of production; "too much" consumption
b. underproduction; "too little" consumption
c. overproduction; "too little" consumption
d. underproduction; "too much" consumption
e. overproduction; "too much" consumption