MODIFIED INSTRUCTIONS:

1. Identify whether each situation is a positive or negative externality:

A. A remodeling company buys several vacant, dilapidated houses in a residential block and fixes them up and updates the landscaping in the yards.

B. A drug company sells a strong prescription painkiller that often leads to an addiction to opiates in its patients.

C. A nightclub opens up next to an apartment complex and routinely plays loud music late at night.

2. Gloom's Broom factory dumps its waste into the local river, causing significant pollution to the drinking water source of the local town of Broomfield.

D. Draw a graph showing the market price and quantity for Gloom's Brooms.

E. Show any external costs or benefits to 3rd parties by adding to your graph. Label the socially optimal price and quantity.

F. Explain what action the government could take to achieve the socially optimal quantity.