The "Formal Defence" of Free Markets Includes the Argument That

question 35

Multiple Choice

The "formal defence" of free markets includes the argument that competitive markets

• A) lead to political freedom.
• B) lead to allocative efficiency.
• C) permit a decentralization of economic power.
• D) provide a stimulus to innovation and economic growth because of the pursuit of profits.
• E) provide automatic coordination of the actions of decentralized decision makers.

---

Definitions:

Product-Variety Externality

External benefits or costs to society resulting from a variety of products beyond what would be provided by market forces alone.

Business-Stealing Externality

A negative externality that occurs when new products or services enter a market, reducing the sales and profitability of existing products or services.

Spillover Costs

Costs that affect parties who are not directly involved in a transaction or economic activity.

Advertising

The activity or profession of producing advertisements for commercial products or services, aiming to influence consumer behavior and preferences.