1. Irrigation systems in Nepal provide farmers with water. Each farmer controls how much water he or she uses, but the government can't stop water from reaching any particular farm. Overall, water is scarce. If the Nepalese government does not restrict farmers' water use, what should we expect to happen?

A. Famers use too little water and ignore the positive externality of their own actions.

B. Farmers use too much water and ignore the positive externality of their own actions.

C. Farmers use too much water and ignore the positive externality of their own actions.

D. Farmers use the socially optimal amount of water.

E. Farmers use too much water and ignore the negative externality of their own actions.

2. If the production of a good creates pollution, then the

A. marginal social cost curve lies above the marginal private cost curve.

B. marginal social cost curve lies below the marginal private cost curve.

C. marginal social benefit curve lies below the marginal private benefit curve.

D. marginal social benefit curve lies above the marginal private benefit curve.