The market for new automobiles is not likely to maximize total economic surplus because
A) of price ceilings on automobiles.
B) the market is not perfectly competitive.
C) of price floors on automobiles.
D) automobiles are allocated on first-come,first-served basis.
E) consumers negotiate prices.

Question

Quizplus · Accepted Answer

The market for new automobiles is not perfectly competitive, meaning there are factors such as brand loyalty, advertising, and product differentiation that lead to less than optimal outcomes in terms of total economic surplus. Price ceilings or floors, first-come, first-served allocation or negotiations may impact the allocation of automobiles, but alone they are not enough to explain why the market is not likely to maximize total economic surplus.

The Market for New Automobiles Is Not Likely to Maximize