1. What is an externality?

2. In a market without environment regulations, will the supply curve for a firm take into account private costs, social costs, both, or neither? Explain.

3. What are three problems that economists have noted with regard to command-and-control regulation?

4. What is a marketable permit, and what incentive does it provide for a firm to take social costs into account?

5. As the extent of environmental protection expands, would you expect the marginal costs of environmental protection to rise or fall? Why?

6. In the trade-off between economic output and environmental protection, how many choices will be both productively efficient and allocatively efficient? Explain.