1.The scent of cinnamon rolls wafting from a local bakery out to the sidewalk is: ????

1. a negative externality.
2. a positive externality.
3. either a positive or negative externality, depending on whether you enjoy or detest the scent.
4. not an externality if the bakery didn't intend to send that scent out to the sidewalk.
5. a public good.

2.An externality is created when others enjoy the benefits or bear the costs of someone's decision: ?????

1. even when the decision-maker doesn't take these benefits or costs into account when making the decision.
2. only when the decision-maker doesn't take these benefits or costs into account when making the decision.
3. only when the decision-maker is aware of these benefits or costs.
4. ceteris paribus.
5. None of the above

3.The government uses the following methods to regulate pollution. Which of these results in the most pollution reduction by the firms with the lowest cost of pollution reduction and the least pollution reduction by the firms with the highest reduction costs?

1. Legal limits combined with fines, taxes, and tradable permits
2. Legal limits combined with fines and taxes
3. Legal limits combined with fines and tradable permits
4. Taxes and tradable permits
5. Legal limits combined with fines