Question

This is a question for which there is unlikely a unique set of answers.   Instead the value of an answer will depend upon its validity and support.    For each of the four reasons you identify below you are required to provide a citation that is not from a textbook, but is from a credible source. If your reasons are based on a graphical argument, you must include the graph, appropriately cited, in a graphic in your submitted answer.

a. Provide two reasons why you would argue that monopolies or firms with market power (i.e. facing downward sloping demand curves) are a positive impact on society and the economy.  

b. Also provide two reasons why you would argue that monopolies or firms with market power (i.e. facing downward sloping demand curves) are a negative impact on society and the economy.

Answer 1

A). Monopolies have a positive impact on society and the economy. Reasons in the favour of argument are:

1. Monopoly ensures regular and consistent supply of product or service that has very high up front cost. E.g electricity

and water supply. It requires huge expenditure to build electric plants and dams.

2. One of the potential advantage of Monopoly tha they can use there super normal profits to subsidize socially useful but loss making services.

B). Negative impact of Monopoly on society and economy-

1. Price fixing - since monopolies are the only service providers, they can fix any price they choose regardless of even demand because they know that consumer has no choice. E.g gasoline

2. Monopoly causes inflation. They can set any price thay want. They will raise cost to consumers.this is called cost push inflation. E.g orgainzations of petroleum exporting countries. The 12 oil exporting countries in OPEC now control the price of 46% of the oil produced in the world.