Advertising can enhance economic efficiency when it:

• A. encourages monopolistic practices in the market
• B. provides consumers with accurate information about products and prices
• C. leads to higher prices by increasing production costs
• D. creates artificial demand for unnecessary goods

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the role of advertising in microeconomics. Advertising can influence consumer behavior and market outcomes by providing information or by creating preferences.
2. Step 2: Identify the concept of economic efficiency. Economic efficiency occurs when resources are allocated in a way that maximizes total surplus (consumer plus producer surplus) without waste.
3. Step 3: Analyze how advertising affects information. When advertising provides accurate information about products and prices, it helps consumers make better-informed decisions, which improves market efficiency.
4. Step 4: Contrast this with other effects of advertising, such as encouraging monopolistic practices, increasing production costs, or creating artificial demand, which typically reduce economic efficiency.
5. Step 5: Conclude that advertising enhances economic efficiency primarily when it improves consumer knowledge, enabling more optimal choices and better resource allocation.