c. positive externality

d. negative externality

e. negative externality

2. a. supply shifts left

b. supply shifts left

c. supply stays the same

d. supply shifts left

3. a. price will rise

b. price will rise

c. price stays the same

d. price will rise.

4. The original equilibrium (before the external social cost of pollution is taken into account) is where the
private supply curve crosses the demand curve. This original equilibrium is at a price of $15 and a

quantity of 440. After taking into account the additional external cost of pollution, the production becomes

more costly, and the supply curve shifts up. The new equilibrium will be at a price of $30 and a quantity of

410.

5. The first policy is command-and-control because it is a requirement that applies to all producers.

6. a. market-based

b. command-and-control

c. command-and-control

d. market-based

e. market-based
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