Question

drag the tiles to the boxes to form correct pairs.
match the scenarios with the economic concepts they illustrate.
positive externality substitution effect negative externality income effect
the rising price of gold causes people to buy silver jewelry instead.
when the price of gas increases, people drive less.
a new factory in a village provides livelihoods for the villagers.
a new factory in a village causes noise pollution.

Explanation:

• Substitution effect: When the price of one good (gold jewelry) rises, consumers switch to a substitute (silver jewelry).
• Income effect: As the price of gas (a necessary good) increases, consumers' real purchasing power decreases, so they consume less (drive less).
• Positive externality: The factory provides an external benefit (livelihoods) to the villagers.
• Negative externality: The factory imposes an external cost (noise pollution) on the villagers.

Answer:

• The rising price of gold causes people to buy silver jewelry instead. → substitution effect
• When the price of gas increases, people drive less. → income effect
• A new factory in a village provides livelihoods for the villagers. → positive externality
• A new factory in a village causes noise pollution. → negative externality