Scenario 16-6
Ike's Ice Cream has decided to open a new ice cream parlor in Mayville, MS. The market for ice cream parlors is monopolistically competitive.
-Refer to Scenario 16-6. As a result of the new Ike's Ice Cream parlor, consumers living in and visiting Mayville are likely to experience a
A)business-stealing externality, which harms producers.
B)business-stealing externality, which benefits producers.
C)product-variety externality, which harms consumers.
D)product-variety externality, which benefits consumers.

Question

Quizplus · Accepted Answer

The entry of a new ice cream parlor in a monopolistically competitive market leads to a product-variety externality. This means that consumers will benefit from having more options to choose from, leading to more diversity in the market. Therefore, the correct answer is D.

Scenario 16-6 Ike's Ice Cream Has Decided to Open a New Ice