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.
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In Adam Smith's competitive market economy, the question of what goods to produce is determined by the:
a. "invisible hand" of the price system. b. "invisible hand" of government. c. "invisible hand" of public interest. d. "visible hand" of laws and regulations.
There is no shortage of scarce resources in a market economy because
a. the government makes shortages illegal. b. resources are abundant in market economies. c. prices adjust to eliminate shortages. d. quantity supplied is always greater than quantity demanded in market economies.