Chapter 11: Externalities

Question 1

with a negative externality, the equilibrium quantity will be ___ than is socially desirable

Answer 1

larger

Question 2

with a positive externality, the equilibrium quantity will be ___ than is socially desirable.
This means

Answer 2

smaller

not enough is being consumed

Question 3

what are 2 ways to internalize the externality?

Answer 3

1. for negative externalities, tax

2. for positive externalities, subsidies