1) Which of the following is an example of a positive externality?

a) Buying a gift for your sister.

b) Receiving a great deal at the local store.

c) Making improvements to your house.

d) None of these choices are examples of a positive externality.

2) When Lin receives a flu vaccination, it reduces the chance of him receiving the flu as well as the chance that his sister will get sick as well. His flu vaccination creates a(n):

a) external cost.

b) external benefit.

c) marginal social cost.

d) deadweight loss.

3) The private consumption of services that generate positive externalities, such as getting a college education, is usually _____ the socially optimal level of consumption.

a) greater than

b) equal to

c) less than

d) unrelated to

4) Since Dik always texts while he drives, he is generating a _______ to others, resulting in a shift of the supply curve to the ______.

a) external cost; right

b) external cost; left

c) external benefit; right

d) external benefit; left

5) Which of the following is not a common method by which the government controls pollution?

a) Issuing tradable permits to pollute.

b) Implementing a tax on pollution emitted.

c) Advertising the harmful effects of pollution to encourage firms to pollute less.

d) Setting a strict limit on the amount of pollution each firm can generate.