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externalities

Are the following statements true or false? Explain why.

. a) (10 points) Competitive markets for goods that create positive externalities result in inefficiently low production of the goods.

. b) (10 points) Banning smoking completely will improve efficiency.

. c) (10 points) Since pollution is bad, it would be socially optimal to prohibit any production that creates pollution.

. d) (10 points) Since consumption of alcohol creates additional health risks to those who drink; we can conclude that consumption of alcohol creates a negative externality to society.

 

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