Monopolies have a negative effect on the entire economy by making it harder for consumers to purchase goods, a trend that leads to lower production in the system. High prices do not affect only the consumer, they end up hurting the monopoly itself. Even systems with more than one competitor can be monopolistic if there are only a few. Competition benefits every human component in the economy.Continue Reading
The ultimate consequence of a monopoly is that overall it reduces society's income. Monopolists take advantage of their unique hold on a market by raising prices above competition level. Because there is no other source from which to purchase the good, people buy it from the monopolist even though it is at a high price. However, the higher price causes consumers to purchase less of the product. As a result of fewer purchases, the monopolist produces less. Thus, goods and money do not diffuse throughout the system the way they do under competition. In this manner, a monopoly reduces aggregate economic welfare.
A monopoly is obviously disadvantageous for the consumer. It subjects them to higher prices and limits their access to goods or services. It restricts consumer choice and sovereignty. Another disadvantage of a monopoly is the lack of innovation. Under competition, firms innovate to offer more than their competitors and capture a greater share of the market. With a monopoly, this incentive to innovate is not present.Learn more about Economics
Monetary policy, established by the federal government, affects unemployment by setting inflation rates and influencing demand for and production of goods and services. Additionally, having stable prices and high demand for products encourages firms to hire workers, which reduces rates of unemployment. In the United States, the Federal Reserve holds responsibility for instituting a national monetary policy. Sometimes, such as during economic downturns, the Federal Reserve asserts its control by implementing long-term and short-term measures to stimulate economic production.Full Answer >
Alfred Marshall wrote the book “Principles of Economics,” which emphasized that the price and production of goods is determined by both supply and demand. Marshall contributed many original ideas to the study of economics, including his analysis of consumer surplus, price elasticity, diminishing returns and marginal utility.Full Answer >
A planned or command economy is one in which major functions, such as production and distribution of goods, are controlled by the government. In a planned economy, the government owns some or all production facilities and decides what to produce and how goods are priced. This is in contrast to a market economy, where production and distribution are decided by market forces with little or no government intervention.Full Answer >
In economics, demand is the quantity of goods or services that consumers are able and willing to buy at a given price at a particular time. The law of demand provides that, if all other market factors remain constant, the demand for goods and services increases as their price decreases.Full Answer >