Explain why an external cost leads to an over-allocation of resources to the production of a good
What will be an ideal response?
An external cost is the cost associated with the production of a good that is not borne by the seller. Rather, the cost is borne by third parties. The seller calculates the amount of the good to produce by comparing private benefits and costs. By ignoring the external costs, the seller produces more of the good than would be the case if the seller actually had to bear the full costs of production. Hence, the seller overallocates resources to the production of the good.
You might also like to view...
Nominal GDP increases
A) only if total production increases. B) only if prices increase. C) if either prices and/or total production increase. D) only if the productivity of resources increase. E) only if depreciation decreases.
Cartel members have an incentive to cheat on the cartel because:
A. the industry profit would be higher under competitive conditions. B. the cartel price is the competitive price. C. each member's output quota is too high. D. each member's MR is not equal to the cartel's MC.
The Latin phrase ceteris paribus means that when a relationship between two variables is being studied
A. both are treated as unpredictable. B. neither of those two variables is allowed to change. C. we recognize that some factors are unknown. D. all other variables are held fixed.
Refer to the information provided in Figure 13.9 below to answer the question(s) that follow. 
Figure 13.9 Refer to Figure 13.9. If Ohio Edison engages in rent-seeking behavior to maintain their monopoly, the true ________ is BEC and the portion of area FGBE that pays for the rent-seeking behavior.
A. net social gain from monopoly B. net social cost of monopoly C. consumer surplus D. producer surplus