ABSTRACT
Although this chapter is but brief, it has a twofold purpose. First, a simple example will be used to raise the possibility that a monopolized industry might yield a greater social surplus than a competitive industry, even when the horizontal industry cost curve is the same or, indeed, somewhat higher under monopoly. Discussion of this example will then lead into a far broader topic, that of the treatment of consumer beliefs in social surplus calculations (and, implicitly, other economic analyses). If consumers can be ill-informed about the characteristics of commodities, what does that imply for familiar arguments in welfare economics?
