Give an example that shows how inefficiency relates to product differentiation for a monopolistically competitive industry.
What will be an ideal response?
Examples will vary, but should show a thorough understanding of how inefficiency relates to product differentiation for a monopolistically competitive industry. Let’s take the pizza restaurant industry as an example. A town has three pizza restaurants that are chains. It also has two local pizza places. The town has an average capacity of ordering 5,000 pizzas a week. However, if the production capacity of all five restaurants is totaled, it would come to 8,000 pizzas a week. As a result, each restaurant has excess capacity. They are able to produce more than they sell. Although this situation is inefficient, it provides the town residents with differentiated products. The pizzas for each restaurant are somewhat different. One restaurant, for instance, provides pineapple pizza while the others don’t. Another restaurant is unique in using only organic ingredients. So inefficiency is the price paid for product differentiation.
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Money serves as a
A) medium of exchange, unit of account, and store of value. B) means to conduct barter transactions. C) means of payment, legal obligation, and public tax. D) means of worker exploitation and capitalist enrichment. E) means of settling debts, transaction lubricant, and private commodity.
In February, 2010 the U.S. M1 money multiplier crashed to 0.786. Each $1 increase in the monetary base resulted in the quantity of money increasing by only $0.79. Where did the remaining $0.21 disappear?
A) Banks held part of the $0.21 as excess reserves. B) Banks loaned out the $0.21. C) Consumers held part of the $0.21 as currency. D) Both A and C are correct.