1.	An externality is_____.
	a. an unintended by-product of market exchange that is allocated outside the market system
	b. an intended by-product of market exchange that is allocated outside the market system
	c. an unintended by-product of market exchange that is allocated within the market system
	d. an intended by-product of market exchange that is allocated within the market system
2.	An unintended byproduct of a market exchange that is allocated outside the market system is _____.
	a. a restrictive covenant
	b. an externality
	c. a pollution right
	d. an external damage
3.	If all my neighbors have well-manicured lawns and well-maintained houses, their actions not only benefit themselves, but they generate a _____ externality because their actions _____the value of my home.
	a. negative; increase
	b. negative; decrease
	c. positive; increase
	d. positive; decrease
4.	When _____ are ______, it will be difficult to reach a private solution.
	a. transactions costs; high
	b. transactions costs; low
	c. externalities; visible
	d. externalities, invisible
5.	In general, pollution is economically inefficient because _____.
	a. people do not like breathing bad air
	b. it is a byproduct of a market exchange
	c. producers are only pursuing their own self-interests
	d. producers do not have to internalize the opportunity cost of clean air
6.	Internalizing a negative externality means _____.
	a. changing the incentives of consumers to ignore the externality
	b. changing the incentives of producers to act as if there were no market for the external cost
	c. changing the incentives of producers to act as if there were a market for the external cost
	d. changing the incentives of consumers to complain about the externality to the producers