In the end we can conclude only that monopolistically

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In the end, we can conclude only that monopolistically competitive markets do not have all desirable welfare properties of perfectly competitive markets. Yet because the inefficiencies are subtle, there is no easy way for public policy to improve the market outcome.Summary: a monopolistically competitive market is characterized by three attributes: many firms, differentiated products, and free entry.The equilibrium is a monopolistically competitive market differs from that in a perfectly competitive market in two related ways. First, each firm in a monopolistically competitivemarket has excess capacity. Second, each firm charges a price above marginal cost.Monopolistic competition does not have all the desirable properties of perfect competition. There is the standard deadweight loss of monopoly cause by the markup ofprice over marginal cost. In addition, the number of firms can be too large or too small. In practice, the ability of policymakers to correct these inefficiencies is limited.The product differentiation inherent in monopolistic competition leads to the use of advertising and brand names. Taxation and Public GoodsChapter 8: The Costs of TaxationThe effects of taxes on welfare might at first seem obvious. The government enacts taxes to raise revenue, and that revenue must come out of someone’s pocket. Both buyers and sellers are worse off when a good is taxed: A tax raises the price buyers payand lowers the price sellers receive. The outcome is the same whether a tax on a good is levied on buyers or sellers of the good. When a tax is levied on buyers, the demand curve shifts downward by the size of the tax; when it is levied on sellers, the supply curve shifts upward by that amount. In either case, when the tax is enacted, the price paid by buyers rises and the price received by sellers falls. In the end, the elasticities of supply and demand determine how the tax burden is distributed between producers and consumers.Which curve shifts depends on whether the tax is levied on sellers (supply curve shifts) or on buyers (demand curve shifts).
Genevieve CrawfordThe tax places a wedge betweenthe price buyers pay and pricesellers receive. Because of thistax wedge, the quantity sold fallsbelow the level that would be soldwithout a tax. In other words, atax on a good causes the size ofthe market for that good to shrink.The benefit received by buyers ina market is measured by consumer surplus—the amountbuyers are willing to pay for thegood minus the amount theyactually pay for it. The benefitreceived by sellers in a market ismeasured by producer surplusthe amount sellers receive for thegood minus their costs. If T is the size of the tax and Q is the quantity of the good sold, then the government gets total tax revenue of T x Q. We use tax revenue to measure public benefit from the tax. It is represented by the rectangle of the tax, T, and the width of the rectangle is the quantity sold. Without a tax, the equilibrium price and quantity are found at the intersection of the supply and demand curves.
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