Market power creates a flawed response to an accurate price signal.
Market power refers to the ability of a single consumer or producer to alter the market price of a good or service.Producers will keep prices high without the threat of competition entering the market.

Question

Quizplus · Accepted Answer

When a producer has market power, they can keep prices high without the threat of competitors entering the market. This means that the price signal, which is supposed to reflect the fair value of a good or service based on supply and demand, becomes distorted. As a result, the response to the price signal is flawed and leads to an inefficient allocation of resources.

Market Power Creates a Flawed Response to an Accurate Price