P

Q

R

S

T

9

2

7

2

6

TABLE 12.11

5

30

20

40

10

a. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis,

measured by the number of trees, and the quantity of economic output, measured in corn, on the

vertical axis.

b. Which choices display productive efficiency? How can you tell?

c. Which choices show allocative efficiency? How can you tell?

d.

e.

f.

In the choice between T and R, decide which one is better. Why?

In the choice between T and S, can you say which one is better, and why?

If you had to guess, which choice would you think is more likely to represent a command-and-control

environmental policy and which choice is more likely to represent a market-oriented environmental

policy, choice Q or S? Why?

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12 • Review Questions 303

Review Questions

14. What is an externality?

15. Give an example of a positive externality and an example of a negative externality.
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