Free Response:
I.) Define the marginal social cost of pollution.
II.) Define the marginal social benefit of pollution, and explain why polluting more can provide benefits to a firm even when it could produce the same quantity of output without polluting as much.
III.) Define the socially optimal level of pollution.
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II.) Define the marginal social benefit of pollution, and explain why polluting more can provide benefits to a firm even when it could produce the same quantity of output without polluting as much.
III.) Define the socially optimal level of pollution.
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Multiple Choice:
1.) Which of the following is a source of negative externalities?
a. loud conversations in a library
b. smokestack scrubbers
c. a beautiful view
d. national defense
e. a decision to purchase dressy but uncomfortable shoes
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2.) Inefficiencies created by externalities can be dealt with through:
a. government actions only
b. private actions only
c. market outcomes only
d. either private or government actions
e. neither private nor government actions
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3.) The Coase theorem asserts that, under the right circumstances, inefficiencies created by externalities can be dealt with through:
a. lawsuits
b. private bargaining
c. vigilante actions
d. government policies
e. mediation
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