If a producer has market power (can influence the price of the product in the market) then free market solutions ?
Correct answer: D. are inefficient
- A. are equitable.
- B. are efficient
- C. maximize consumer surplus
- D. are inefficient
Explanation
Market power allows a producer to restrict output and charge a price above marginal cost. This creates deadweight loss, so the market outcome is inefficient rather than maximizing total surplus.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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