Explain why advertising that results in spuriously differentiated products may result in a deadweight loss to total welfare
What will be an ideal response?
The firm spends money to steal customers from a rival. This additional expense only results in a transfer from one producer to another. The firm that advertises gains, the rival loses and the advertising expense can be thought of as part of deadweight loss. The advertising expense does nothing productive from a social point of view.
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Assuming the market is in equilibrium in the graph shown with demand D and supply S1, total surplus is:
A. greater than total surplus when market is in equilibrium at D and S2.
B. less than total surplus when market is in equilibrium at D and S2.
C. the same as total surplus when market is in equilibrium at D and S2.
D. zero.
Give a scenario of a perfectly competitive firm finding the profit-maximizing level of output over a several-year period.
What will be an ideal response?
Which of the following is the government most likely to discourage because of the existence of externalities?
A. Foods that taste good. B. Thermal pollution from a power plant that improves fishing downstream. C. Cars that create an excessive amount of exhaust fumes. D. All goods and services produced by monopolies.
The refusal to work by unionized labor is an example of
A. A lockout. B. A strike. C. Collective bargaining. D. The right to work.