Relative to standard competitive trade, trade based on monopolistic competition has _____ impact on factor incomes.

Question

Quizplus · Accepted Answer

Trade based on monopolistic competition leads to lower factor incomes because firms in monopolistically competitive markets have some market power, which allows them to charge higher prices and earn higher profits. This results in a smaller share of income going to factors of production (such as labor and capital) compared to competitive markets, where firms have no market power and so price and profit levels are lower.

Relative to Standard Competitive Trade, Trade Based on Monopolistic Competition