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

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Essay

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


Definitions:

Zoning Ordinance

A law that specifies how land within a jurisdiction can be used, dividing areas into zones (e.g., residential, commercial).

Criminal Penalties

Sanctions imposed for violations of criminal law, which can include fines, imprisonment, or other forms of punishment.

Clayton Act

A U.S. antitrust law aimed at promoting fair competition for the benefit of consumers, preventing mergers and acquisitions that significantly reduce market competition.

Hart-Scott-Rodino Antitrust Improvement Act

A federal law that requires companies to file premerger notifications and undergo a review period before completing certain mergers, acquisitions, or transfers of securities.

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