1. An externality exists when agent A’s utility or production function depends on real variables chosen by another agent B, without an offer of compensation or other attention given to the effect of A’s well-being.   True or False   2. The "invisible hand" of the market leads to the efficient allocation of goods and services, even in the presence of externalities.   True or False   3. If there is a negative production externality, the market price of the good will be higher than the socially-optimal price.   True or False

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