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occur when property rights are not clearly defined.Multiple choice question.ExternalitiesShortagesSurplusesProfits

Question

occur when property rights are not clearly defined.

  • Externalities
  • Shortages
  • Surpluses
  • Profits
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Solution

The correct answer to the question "What occurs when property rights are not clearly defined?" is Externalities.

Explanation:

  1. Externalities refer to the costs or benefits that affect a party who did not choose to incur those costs or benefits. They often arise in situations where property rights are not well-defined, leading to negative or positive effects on third parties.

  2. Shortages occur when demand exceeds supply, which is not necessarily related to property rights.

  3. Surpluses occur when supply exceeds demand, again not directly linked to the definition or clarity of property rights.

  4. Profits are the financial gain made in a transaction, but they do not directly relate to the clarity or lack of clarity of property rights.

Thus, a lack of clearly defined property rights often leads to externalities, justifying the answer.

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