When Significant Externalities Exist

Multiple Choice

When significant externalities exist:
I. the market equilibrium is no longer efficient.
II. the market equilibrium is only efficient if the externality is an external benefit.
III. social surplus is not maximized.
IV. the government may increase efficiency by imposing a tax on the market.

A) I only
B) II and IV only
C) I and III only
D) II, III, and IV only