1. A negative externality is?

A. a by−product of an activity that hurts someone who is not involved in that activity.

B. a cost realized by the producer of a good or service.

C. a cost paid for by the consumer of a good or service.

D. anything that is external or not relevant to the production of a good or service.

2. Which of the following assertions about pollution is generally agreed with by economists?

A. The ideal amount of pollution is no pollution.

B. Due to the demand for products made by those who? pollute, it is best to not restrict pollution.

C. The problem we face in dealing with pollution is determining the optimal amount of pollution.

D. Pollution is never a problem because those who pollute and the victims of pollution can always bargain with one another and arrive at a suitable outcome.

3. Pollution problems generally represent

A. cases of good versus evil.

B. cases of villain versus victim.

C. morally neutral disagreements over competing uses of a scarce resource.

D. Both a and b are correct.

4. When considering the socially optimal amount of? pollution, the benevolent social planner takes into account any laws regarding pollution.

True

False

5. Legal constraints will always reduce the size of the economic pie.

True

False

6. Which of the following must be present to reach a negotiated solution to an externality? problem?

A. A majority of the parties involved must agree to a solution.

B. The transactions costs to negotiate the solution must be relatively low.

C. A large number of people must be involved to justify negotiating a solution.

D. The government must approve the solution.