When a pulp mill pollutes the air by causing a smell people find unpleasant, there is a.opportunity costs b.internal costs. c.external costs. d.explicit costs An externality exists when a.some benefits or costs associated with a good are borne by third parties. b.the government taxes a good. c.goods are sold in specific geographic locations but are then exported. d.the government subsidizes a good. Governments can correct for negative externalities such as emissions from motor vehicles by a.allowing the market system to correct the problem. b.increasing taxes or regulating behaviour. c.subsidizing people or firms harmed by the externality. d.decreasing the costs to those responsible for the externality. If production of a good results in sizable external costs, an appropriate government policy might be to a.tax the consumer's income and thus shift the demand curve to the left. b.subsidize the production of the good. c.tax its producers, thus shifting the industry supply curve to the left. d.subsidize the consumers, since the good is being under-consumed. Social costs are the total costs a.borne by society whenever a resource-using activity takes place. b.incurred by government and borne by all taxpayers c.external costs minus internal costs. d.incurred in the delivery of government welfare programs. The marginal cost curve of a firm shows a.external costs. b.social costs. c.private costs. d.pollution costs.

When the social costs of an activity exceed the private costs, the problem is one of a.a positive externality. b.underproduction of output. c.productive inefficiency. d.a negative externality.