Question

A potential negative effect of advertising for society is that it can:

a) Create X-inefficiency
b) Lower barriers to entry and undermine profits in the industry
c) Be self-cancelling and contribute to economic inefficiency
d) Be the major cause of price wars among firms in the industry
e) Reduce mutual interdependence and increase competition

Answer 1

Advertising in the framework of monopolistic competition can have negative effects on society, including reducing mutual interdependence and increasing competition. Advertising can also lower barriers to entry and undermine profits in the industry. Additionally, advertising efforts can cancel each other out and contribute to economic inefficiency.

Step-by-step explanation:

Advertising in the framework of monopolistic competition can have negative effects on society. One potential negative effect is that advertising can reduce mutual interdependence and increase competition. When firms compete aggressively with advertising campaigns, it can lead to price wars and lower barriers to entry, which can undermine profits in the industry. Additionally, advertising can be self-cancelling and contribute to economic inefficiency if competing firms' advertising efforts neutralize each other and leave the industry in the same position as if no advertising was done.