Why is the effect of a change in price of a substitute good potentially ambiguous?
What will be an ideal response?
A change in price of a substitute good for a resource has two effects. First, there is a substitution effect where a firm will use more or less of a substitute good relative to the resource depending on whether the price of the substitute falls or rises. Second, there is an output effect where the firm will use more of the resource because the substitute resource has declined in price or vice versa. Since these effects move in opposite directions the total effect is unclear.
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A positive externality is present whenever: a. the social marginal benefit of an activity exceeds the private marginal benefit. b. the private marginal benefit of an activity exceeds the private marginal cost. c. the social marginal cost of an activity exceeds the private marginal cost
d. none of the above.
Targeting the wealthy in a less-developed country in order to achieve reductions in poverty can drive the wealthy to relocate
a. True b. False