Equilibrium in a perfectly competitive market results in the greatest amount of economic surplus, or total benefit to society, from the production of a good. Why, then, did Joseph Schumpeter argue that an economy may benefit more from firms that have
market power than from firms that are perfectly competitive?
What will be an ideal response?
Schumpeter did not deny that perfectly competitive firms produced the greatest amount of consumer surplus, but this result does not address which type of market structure is best for developing new products. Schumpeter pointed to the large costs of product development; how can small, perfectly competitive firms afford the monetary cost and the risk of failure that product development requires? Only large firms in monopoly or oligopoly industries can afford investments in research and development, and the inevitable failures that accompany research. According to Schumpeter, the higher prices firms with market power charge are less important than the benefits from new products these firms introduce to the market.
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Having interest rate stability
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A shift in tastes toward foreign goods ________ net exports in the U.S. and causes the quantity of aggregate output demanded to ________ in the U.S., everything else held constant
A) decreases; rise B) decreases; fall C) increases; rise D) increases; fall