Which of the following is an example of a positive externality?

1. Public higher education helps foster a society that is more informed about issues of law and public policy.
2. A homeowner invests in home improvements to their house, increasing its market value.
3. A local government imposes a tax on alcohol.
4. A wildfire is sparked from a nearby railroad.
5. A firm invests in new capital equipment.

From a social efficiency perspective, markets tend to ____________ goods with positive externalities, if left unregulated.

1. overproduce
2. underproduce
3. produce the correct amount of
4. charge not enough for
5. monopolize

Which of the following issues primarily explains why societies sometimes allow governments to provide public goods such as roads and bridges, instead of private companies?

1. Anti-trust law
2. Profit maximization
3. Negative externalities
4. Free rider problem
5. Inelastic demand