Question

In: Economics

The loss of competition in many important industries is worrisome for many reasons, (pick the best...

The loss of competition in many important industries is worrisome for many reasons, (pick the best response) - what is the most important one?

perfect competition is a myth, but one that society does not want to lose.

There may be consumer welfare losses.

Big firms will control our lives.

Big firms are more likely to lobby government and that is bad.

Solutions

Expert Solution

The loss of competition in many important industries is worrisome for many reasons - what is the most important one?

Answer: There may be consumer welfare losses.
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Explanation:

Though all the given options have a degree of importance, the most important reason is that loss of competition negatively impacts the consumers.

Consumers end up paying higher prices, enjoying lower variety, lower quantities and lower overall satisfaction -- in the absence of proper competition.

Society as a whole witnesses a large deadweight loss, or loss in total surplus / welfare.

Competition is essential for a healthy economy.

Consumer welfare is the most important parameter to judge.

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Explanation of other options:

All the other options have some strengths:

  • Perfect competition is a myth, but one that society does not want to lose - though it may be an ideal state, it is still achievable. Many electronic markets have come close. Society doesn't want to lose it since it maximizes consumer welfare.
  • Big firms will control our lives - they may, but it may still be beneficial to consumers.
  • Big firms are more likely to lobby government and that is bad - they already do, but that still doesn't mean that the consumer is worse off.

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