College American Economics Worksheet

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When there is a negative externality, the private market produces than what is socially optimal because it ignores the . In order to bring the market closer to the socially optimal outcome, the government could impose a on the market.

Flag question: Question 2Question 23 pts

When there is a positive externality, the private market produces than what is socially optimal because it ignores the . In order to bring the market closer to the socially optimal outcome, the government could impose a on the market.

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The ideal tax is equal to the amount of the .

The ideal subsidy is equal to the amount of the .

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When a positive externality is present, the must be added to the private benefit to find the . The socially optimal quantity and price can be found where the private cost curve crosses the curve.

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When a negative externality is present, the must be added to the private cost to find the . The socially optimal quantity and price can be found where the private benefit curve crosses the curve.

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An external cost occurs when producing or consuming a good or service imposes a (negative effect) upon a third party.

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An external benefit occurs when producing or consuming a good or service imposes a (positive effect) upon a third party.