Question: (25 Points) 2. (a) Distinguish between positive and negative externalities. Why do externalities exist in the economy? (b) Graphically illustrate and explain how free market

(25 Points) 2. (a) Distinguish between positive and negative externalities. Why do externalities exist in the economy? (b) Graphically illustrate and explain how free market fails to provide socially efficient level of output in the presence of negative externalities in production. (c) Carefully discuss in detail the major U.S. government policy designed to deal with the economic problem of negative externalities in production and the economic consequences of the policy

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