Question

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

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 monopolistic competition can reduce mutual interdependence and increase competition, lower barriers to entry and undermine profits, and create X-inefficiency.

Step-by-step explanation:

In the framework of monopolistic competition, advertising can have a potential negative effect on society by:

Reducing mutual interdependence and increasing competition - When multiple firms engage in advertising to attract customers, it can lead to increased competition and reduced mutual interdependence among firms.

Lowering barriers to entry and undermining profits in the industry - Advertising can make it easier for new firms to enter the market, leading to increased competition and potentially lower profits for existing firms.

Creating X-inefficiency - Advertising expenses can lead to increased costs for firms, which can result in inefficiencies in the allocation of resources.

These negative effects of advertising on society can have implications for both firms and consumers within an industry.