Refer to the above figure. The market equilibrium quantity is Q1. ...

[abc]

Refer to the above figure. The market equilibrium quantity is Q1. Point Q2 represents the optimal amount of production. This indicates that there is
 
  A) a public good which should be produced.
  B) regressive taxation of the product.
  C) a positive externality.
  D) a negative externality.

Question 2

When supply and demand for a product increase simultaneously, we
 
  A) can predict that both the market clearing price and the equilibrium quantity will increase.
  B) can predict that both the market clearing price and the equilibrium quantity will decrease.
  C) cannot predict the market clearing price, but know that the equilibrium quantity will increase.
  D) cannot predict the change in either the equilibrium quantity or the market clearing price.

[yasmina]

Answer to Question 1

C

Answer to Question 2

C