1. A gold mining firm discharges mercury into a river and causes the water downstream to become undrinkable. In this case:

A) too little of society's resources is being used to produce gold.

B) too much of society's resources is being used to produce gold.

C) the optimal amount of society's resources is being used to produce gold.

D) there is an external benefit to society from gold production.

2. The presence of external costs in a market economy:

A) allocates resources inefficiently.

B) allocates resources efficiently.

C) automatically corrects an overallocation of resources.

D) automatically corrects an under allocation of resources.

3. Inoculations against the flu generate positive external benefits to other people who have not paid for the medicine. In a market without government intervention:

A) too many doses of flu vaccine being produced, since external benefits would not be considered.

B) too few doses of flu vaccine being produced, since external benefits would not be considered.

C) the optimal amount of doses of flu vaccines being produced, since external benefits would not be considered.

D) a shortage of doses of flu vaccine, because their marginal social benefit is overestimated.

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