Externalities — Practice Set 1

A negative externality exists when:

With a negative production externality, the socially efficient quantity is ___ the market quantity.

The socially optimal output occurs where:

A Pigouvian tax on pollution should ideally equal:

A positive externality in consumption (e.g., vaccinations) leads the market to produce:

Which policy best addresses a positive externality?

Tradable pollution permits achieve efficiency by:

The Coase theorem states that with well-defined property rights and low transaction costs:

Traffic congestion is an example of:

If MSC > MPC at the market quantity, then reducing output by one unit will: