Does the fact that monopolistically competitive firms do not achieve productive efficiency or allocative efficiency mean that there is a significant loss in consumer welfare?
What will be an ideal response?
No. Although monopolistically competitive firms reduce total economic surplus by producing less than the efficient amount (creating a deadweight loss) they also increase consumer welfare because people are willing to pay more for variety and for products that are more closely suited to their tastes. Consumer welfare can be measured by consumer surplus.
You might also like to view...
A recurring theme in economics is that people
A. can increase resources by limiting their economic wants. B. have unlimited resources but limited economic wants. C. have unlimited economic wants but limited resources. D. have limited economic wants and limited resources.
Mutually beneficial trade is impossible when different persons have different preferences about goods and services.
Answer the following statement true (T) or false (F)
The law of increasing costs indicates that the opportunity cost of producing a good:
A. is proportional to the production of the good. B. is constant to the production of the good. C. increases as more of the good is produced. D. decreases as more of the good is produced.
What is economic growth and how do we calculate its rate?
What will be an ideal response?