Q1.
1. What is the difference between a positive externality and a negative externality? Describe an example of each.
2. Why does an otherwise competitive market with a negative externality produce more output than would be economically efficient?
Q2.
1. Why does an otherwise competitive market with a positive externality produce less output than would be economically efficient?
2. When do externalities require government intervention, and when is such intervention unlikely to be necessary?