1) In June 2007, there was a wave of concern about the safety of products exported from China to the U.S., following the discovery that some exported food items were contaminated and some exported toys were painted with lead paint. It seemed likely that U.S. consumers would drastically decrease or even stop their purchases of food and toys imported from China. Uncertainty about product quality would thus lead to the elimination of the mutually beneficial exchange of good-quality, cheap products between low-cost Chinese manufacturers and U.S.-based consumers. 1.1. This situation arose due to ___________. A. Market imperfections B. Creative destruction C. Globalization D. Consumer sovereignty 2. Which of the following situations generates external costs? A. All of these situations generate external costs B. Using a leaf blower on your yard early on a Sunday morning C. A rock concert next to the library during final exam week D. One person smoking cigars among several nonsmokers in a closed room3. If the production of a good generates external costs for society as a whole, then: A. Firms produce more than they would if they incurred the full costs of production B. The government can improve on the market outcome by subsidizing production C. The market price of the good overstates the total cost of production to society

CA A