Final answer:
True The assertion that monopoly is inefficient because it causes a transfer of consumer surplus to producer surplus, and results in deadweight loss is true. Monopolies set higher prices and produce less output, which leads to inefficiencies and a reduction in the total surplus of society.
Step-by-step explanation:
The statement that monopoly is inefficient because some consumer surplus is transferred to producer surplus is true. Monopolies are considered inefficient because they do not supply enough output to be allocatively efficient. Unlike in perfect competition, where the price is determined by the intersection of supply and demand, a monopoly sets a higher price and produces less output.
In a monopolistic market, the goal of the monopoly is to maximize profits, which often involves setting a price higher than the competitive equilibrium price. This higher price transfers some of the consumer surplus to the monopoly as additional profit, leaving consumers with less surplus and thus welfare loss.
Furthermore, because monopolies produce less than what would be produced in a competitive market, this underproduction also contributes to an inefficient outcome known as deadweight loss, where potential gains from trade are not realized, harming both consumer and producer welfare.
This deadweight loss is depicted in economic models as a triangle, representing lost surplus for both consumers and producers.
It's an area where the value that consumers place on a good exceeds the cost of producing it, but the transactions do not occur because the monopoly's high price prevents some consumers from making purchases. Thus, the total surplus of society is reduced, and the outcome is inefficient.