1. To maximize social welfare when there are no externalities, __________ must be equal to __________.

a. private costs; social costs                       

b. private costs; social benefits                

c. marginal private costs; marginal private benefits                        

d. social benefits; private benefits                         

e. Answers a, c, and d are correct.

2. Which type of approach does the Environmental Protection Agency take toward resolving externality problems?                           

A. public sector                

b. Coasian bargaining                  

c. military action                              

D. Both a and b are correct.                       

E. None of the answers is correct.

3. In private equilibrium, a positive production externality will lead to __________; a negative consumption externality will lead to ___________.                 

A. the socially efficient amount of production; "too much" consumption                             

b. underproduction; "too little" consumption                   

c. overproduction; "too little" consumption                      

d. underproduction; "too much" consumption                 

e. overproduction; "too much" consumption.