Section13

Question 1

What is monopolistic competition?

Answer 1

Many firms selling products that are similar but not identical.

Question 2

What are the attributes of monopolistic competition?

Answer 2

• Many sellers: Compete for the same group of customers.
• Product differentiation: Products are slightly different; firms face downward-sloping demand curves.
• Free entry and exit: Firms enter/exit freely, leading to zero economic profits in the long run.
• Cross-price elasticities of demand are large but not infinite.

Question 3

How does monopolistic competition behave in the short run?

Answer 3

Firms choose quantity and price like a monopoly, leading to potential profits or losses.
In the short-run, these two types of market structure are similar!

Question 4

What happens when firms make short-run economic profits?

Answer 4

Encourages new firms to enter:

• Increases number of products.
• Shifts incumbent firms’ demand curves left, reducing profits.

Question 5

What happens when firms face short-run economic losses?

Answer 5

Encourages firms to exit:

• Reduces number of products.
• Shifts remaining firms’ demand curves right, increasing profits.

Question 6

What characterizes monopolistic competition in the long run?

Answer 6

Firms earn zero economic profit due to free entry and exit, with price equal to average total cost.

Question 7

How does monopolistic competition differ from perfect competition?

Answer 7

There are two noteworthy differences between monopolistic and perfect competition in the long-run: mark-up and excess capacity within the monopolistic competition

• Mark-up over marginal cost: Price exceeds marginal cost, creating deadweight loss. (on price axis)
• Excess capacity: Firms operate below optimal production level. (on quantity axis)

Question 8

What are the critiques of advertising in monopolistic competition?

Answer 8

Firms that sell highly differentiated consumer goods typically spend between 10 and 20 percent of revenue on advertising.
- Manipulates tastes.
- Impedes competition by exaggerating product differences.
- Promotes consumerism with high ecological footprints.

Question 9

What are the defenses of advertising in monopolistic competition?

Answer 9

• Provides consumer information.
• Increases competition through variety.
• Signals product quality to consumers.

Question 10

What is the ecological footprint in the context of consumerism?

Answer 10

Measures the land area needed for a society’s consumption and waste absorption, reflecting environmental impact.
Measures the demand for
plant-based food and fiber
products, livestock and
fish, timber, space for
urban infrastructure, and
forest to absorb carbon
emissions from fossil fuels.

Global biocapacity = 1.6 hectares/capita
CH: 3.7 :((

Question 11

How does consumerism relate to sustainability issues?

Answer 11

Consumerism drives higher consumption, innovation, and ecological footprints, often conflicting with sustainable development goals.

Question 12

What role do consumers play in sustainable development?

Answer 12

Consumers drive sustainable production and are central to reducing ecological footprints.

Environment/Society/Economy

Question 13

Monopolistic competititon and consumerism

Answer 13

Monopolistic competition fosters increased consumerism by
 offering a wide range of differentiated products,
 encouraging innovation to bring on the market new products,
 using advertising to stimulate demand.

This structure creates an environment where consumers are more likely to make repeated and diverse purchases, driving economic consumption.

PROBLEM: consumer societies are characterized by a high value of the ecological footprint and, therefore, far from a society that promotes a sustainable development.

Question 14

Circular Economy as a Solution

Answer 14

Focuses on sharing (ganz innen), reusing, repairing, remanufacturing, refurbishing, and recycling (ganz aussen).

Aims to minimize waste and extend product life.

Requires all stakeholders to consider the entire product cycle.