A change in any of the ceteris paribus conditions for demand ...

[MGLQZ]

A change in any of the ceteris paribus conditions for demand leads to a
 
  A) a good going from an inferior good to a normal good.
  B) movement along the demand curve.
  C) shift of the demand curve.
  D) change in supply.

Question 2

Explain why an external cost leads to an over-allocation of resources to the production of a good.
 
  What will be an ideal response?

[amcvicar]

Answer to Question 1

C

Answer to Question 2

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.

[MGLQZ]

Thank you

[amcvicar]

No problemo