Cashews and asparagus are normal goods. When the price of asparagus falls, the substitution effect by itself causes
a. the consumer to feel richer, so the consumer buys more cashews.
b. the consumer to feel richer, so the consumer buys less cashews.
c. cashews to be relatively more expensive, so the consumer buys less cashews.
d. cashews to be relatively less expensive, so the consumer buys more cashews.
c
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The product-variety externality arises in monopolistically competitive markets because
a. firms produce with excess capacity. b. firms try to differentiate their products. c. firms would like to produce homogeneous products, but the large number of firms prohibits it. d. entry and exit is restricted.
Any imperfection in the market mechanism that prevents optimal outcomes is known as
A. Government failure. B. Market failure. C. External cost. D. Public cost.