Question

TRUE/FALSE
1. When externalities exist, economic efficiency is achieved when marginal private benefit equals
marginal private cost.
2. Reducing pollution to zero emissions would be socially efficient.
3. The economically efficient car is the one with the lowest emissions.
4. Competitive firms consider private costs, but disregard external costs, when making their economic decisions.

Answer 1

1. When externalities exist, economic efficiency is achieved when marginal private benefit equals marginal private cost - true.
2. Reducing pollution to zero emissions would be socially efficient - true.
3. The economically efficient car is the one with the lowest emissions - false 
4. Competitive firms consider private costs, but disregard external costs, when making their economic decisions - false.