Explain Why an External Cost Leads to an Over-Allocation of Resources

question 321

Essay

Explain why an external cost leads to an over-allocation of resources to the production of a good.

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Definitions:

Shelter Principle

A legal concept in property law that allows a person who purchases goods from a non-owner to acquire valid title under certain conditions, provided the seller had derivative authority to sell.

Holder-In-Due-Course Doctrine

A principle in commercial law that protects a purchaser of a negotiable instrument who takes it for value, in good faith, and without notice of any defect.

Financial Transactions

The exchange of assets between parties, often involving money, securities, or other forms of financial instruments.

Ethnocentrism

The act of judging another culture solely by the values and standards of one's own culture.