1			If the price of a product is less than its marginal social costs, then:
			A)	Society would prefer more of this product being produced
			B)	Society would prefer less of this product being produced
			C)	External costs must be zero
			D)	Short-run average costs must be at minimum
2			What does the long-run equilibrium of a perfectly competitive market suggest?
			A)	That the price is equal to the lowest SRAC but not necessarily the lowest LRAC
			B)	That the price is equal to the lowest LRAC but not necessarily the lowest SRAC
			C)	That the price is equal to both the lowest SRAC and the lowest LRAC
			D)	That price cannot equal marginal cost
3			All of the following, except one, are benefits of perfectly competitive markets. Which is the exception?
			A)	Competitive markets promote personal economic freedom.
			B)	Competitive markets eliminate externalities.
			C)	Ignoring externalities, competitive markets are productively efficient.
			D)	Competitive markets are costless to implement.
			E)	Ignoring externalities, competitive markets are allocatively efficient.
4			Which form of pollution control would one expect environmental groups to favour the most?
			A)	Legislative controls, because of the built-in incentive firms have to reduce pollution below the required minimum.
			B)	A pollution tax, because the producer pays all of the tax and the consumer none.
			C)	The pollution tax, because the consumer pays all of the tax and the producer none.
			D)	The marketing of pollution permits, because the environmental group has the option of directly reducing pollution by buying permits and not using them.

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5			Suppose this graph represents a polluting industry and that government wishes to decrease its output by 10 units. Which of the following will produce this result?
			A)	Imposing an excise tax of $2
			B)	Imposing an excise tax of $1
			C)	Granting a subsidy of $2 to producers
			D)	Granting a subsidy of $1 to producers
			E)	Granting a subsidy of $2 to consumers

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6			Suppose that this graph represents an industry with big external benefits and that government wishes to increase its output by ten units and lower its price. Which of the following will produce this result?
			A)	Imposing an excise tax of $2
			B)	Imposing an excise tax of $1
			C)	Granting a subsidy of $2 to producers
			D)	Granting a subsidy of $1 to producers
			E)	Granting a subsidy of $2 to consumers

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7			Suppose that this graph represents an industry with big external benefits and that government wishes to increase its output by ten units and raise its price. Which of the following will produce this result?
			A)	Imposing an excise tax of $2
			B)	Imposing an excise tax of $1
			C)	Granting a subsidy of $2 to producers
			D)	Granting a subsidy of $1 to producers
			E)	Granting a subsidy of $2 to consumers