When we say that production externalities are present with respect
to a particular product we mean
1. that the economy must necessarily operate
inefficiently with respect to the production of the product in
question.
2. that the quantity produced of the product in
question, despite what the government does, cannot be the socially optimal
quantity.
3. that private costs and benefits are not everywhere
equal to social costs and benefits.
4. that all of the above are true.
Choose the option that yields the correct answer.