How does promoting competition help in market efficiency?

Promoting competition is fundamental to enhancing market efficiency, and the impact of competition is particularly evident in two key areas: innovation and pricing. When multiple firms operate in a market, they are compelled to continuously improve their products and services to attract consumers. This drive for improvement leads to innovation, as companies seek new technologies, improved processes, and better customer experiences to differentiate themselves from competitors.

Furthermore, competition typically leads to more favorable pricing for consumers. In a competitive market, firms strive to offer better prices to capture a larger share of the market, which results in lower prices and more options for consumers. This dynamic helps ensure that resources are allocated efficiently, as firms that cannot provide quality products or attractive prices may lose market share or exit the market altogether.

In contrast, scenarios presented in the other choices, such as the emergence of monopolies or reduced consumer choices, do not typically enhance market efficiency. Monopolies can lead to price-setting power and a lack of incentive to innovate, while a reduction in consumer choices undermines the benefits of competition. Thus, option C accurately reflects the positive impact of competition on market efficiency, highlighting its role in fostering innovation and better pricing strategies.