1			Which of the following is true about externalities?
			A)	Positive externalities are efficient, but negative externalities are not efficient
			B)	Negative externalities are efficient, but positive externalities are not efficient
			C)	Both positive and negative externalities are inefficient
			D)	Both positive and negative externalities are efficient
2			If at the market equilibrium the marginal social cost of producing a good is higher than the marginal private cost
			A)	Not enough of the product is being produced
			B)	The good produces a positive externality
			C)	The price charged for the good is too high
			D)	The good produces a negative externality
3			When producing a good creates a negative externality
			A)	Private supply increases
			B)	Private supply decreases
			C)	Private supply curve overstates the marginal social cost of the good
			D)	Private supply curve understates the marginal social cost of the good
4			When consuming a good creates a positive externality
			A)	Private demand increases
			B)	Private demand curve understates the marginal social benefit of the good
			C)	Private demand decreases
			D)	Private demand curve overstates the marginal social benefit of the good
5			A key element of the Coase theorem is
			A)	The ability to negotiate at no cost
			B)	That externalities occur in production and consumption of products
			C)	That there are no efficient solutions to the problems caused by externalities
			D)	None of the above

Use the figure above to answer questions 6 to 9. PD is private demand and SD is social demand.

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6			Based on the above figure, an unregulated market would produce:
			A)	10
			B)	20
			C)	30
			D)	40
7			Based on the above figure, the socially optimal quantity is:
			A)	10
			B)	20
			C)	30
			D)	40
8			The figure above illustrates the presence of:
			A)	Positive externality
			B)	Negative externality
			C)	Positive and negative externalities
			D)	The Coase theorem
9			Following the figure above, a per–unit subsidy of ______ would result in production of the socially optimal quantity.
			A)	$5
			B)	$4
			C)	$3
			D)	$2
10			Other things being equal, if the government decreased the quantity of pollution rights (permits) to be sold
			A)	The price of pollution rights would fall and pollution would rise
			B)	The price of pollution rights would rise and pollution would fall
			C)	The price of pollution rights would fall and pollution would fall
			D)	The price of pollution rights would rise and pollution would rise
11			The socially optimal level of pollution:
			A)	Is zero
			B)	Is constant
			C)	Is more likely above zero
			D)	None of the above
12			To remedy a positive externality:
			A)	Tax it
			B)	Subsidize it
			C)	Do nothing as it is good to have positive externalities
			D)	None of the above
13			When the use of a communally owned resource has no price, then:
			A)	People will not use this resource
			B)	People will use this resource until marginal benefit equals zero.
			C)	People will use this resource until marginal benefit equals infinity.
			D)	None of the above
14			Which of the following occurs when property rights are not enforced?
			A)	The resource will be used until its marginal cost exceeds its marginal benefit.
			B)	The resource's use will result in an external benefit, making it more valuable.
			C)	The resource will face the tragedy of the commons
			D)	None of the above
15			When does a situation qualify as a positional externality?
			A)	When an increase in one person's performance increases the expected reward of another
			B)	When an increase in one person's performance does not affect the expected reward of another
			C)	When an increase in one person's performance reduces the expected reward of another
			D)	None of the above