Free «Economics» Essay Sample
The occurrence of monopolies is considered to be the historically inevitable economic process caused by the concentration of the production as well as the development of scientific and technical progress. Therefore, it is necessary to understand that, in spite of the negative effects that come with the emergence of monopolies and against which the antitrust laws in many countries are created, the monopolies have become the essential part of the economy of some individual countries and the world in general. In fact, nowadays the problems of economic life monopolization as well as the competition in the commodity markets attract the attention not only experts, but also the public. It should be mentioned the social and governmental attitude towards the various forms of monopolies is always ambivalent because of the contradictory role of monopolies in the economy.
The term Monopoly comes from the Greek. ‘Monos’ which means ‘one’ and ‘poleo’ which means ‘to sell’. This term is usually used to emphasize the exclusive right of a certain region of the state or the organization and the firm. However, while turning to the monopoly as to the form of the economic structure of the market, it should be seen as a certain type of economic relations, which allow one of the participants of these relationships to dictate their terms on the specific market (Husted & Melvin, 1993).
As an economic phenomenon, monopolies have been known for a long time. They existed in the ancient world and under feudalism, and expressed the possession of some exceptional economic advantage in the economic system. However, in those days they were not a typical phenomenon, but simply an exception. In the 20th century, they became more widespread. The emergence of monopolies created the competition that took place among monopolies and outsiders, i.e. the businesses and non-monopolistic associations as well as within the monopolies themselves.
Since the monopoly firm as well as any other company is committed to high returns, in the course of making a decision on the sale price it takes into account the market demand and the cost of production. Since the monopolist itself determines the market price, it cannot consciously behave as a perfect competitor and take the price as unchanged. Instead, it takes as unchanged the decreasing market demand curve. In other words, the monopolist is not adjusted to the conditions of equilibrium, born on the market by the interaction of supply and demand. Quite the contrary, the monopolist produces market equilibrium itself. It does this by selecting a value and the value of production, which could bring the greatest profit at the level of its production costs.
The monopoly profit is usually greater rather than the average profit of the product emerging across the industry based on the principle of equal profit for equal capital. In addition, the monopoly profit includes the usual profit excess obtained by any successful entrepreneurs, i.e. the so-called monopoly profit. It reflects the ability of the monopolist to raise price above marginal cost, not paying attention at the same time on the competition (Dixit & Norman, 1980).
However, there is also the natural monopoly, i.e. the situation in the market in which the activities of one firm are more efficient due to the presence of significant economies of scale, accompanying with the increase in the production. In this industry, the most efficient scale of production of the commodity is close to the amount by which the market makes the demand at any price sufficient to cover production costs.
The abovementioned means that the Futures Unlimited Corporation in terms of output and price decision can follow the average rules of monopolies performance. The similar situation can be seen in the terms of profit. However, personally, I suppose that monopoly on plutonium-fueled transportation should be considered as the natural monopoly as it meets the demand in this market in the more efficient way rather then the absence of competition due to technological features of production and goods produced can not be replaced in the consumption of other goods. Therefore, the demand for this commodity market is less dependent from changes in prices of these goods than the demand for other goods.
The regulation of foreign trade is crucial for any country, regardless of its status, as it is directly linked with the problem of the security. In fact, the economical safety of the state is ensured by an optimal combination of the domestic production as well as the export/import policy. However, it should be mentioned that the optimal combination would vary depending on the international situation and internal governmental policy.
The most commonly used regulators of the international trade in the market include technical barriers, tariff quotas, defense mechanisms as well as the activities of public and quasi-public enterprises. However, there also can defined the additional financial and tax measures, which usually can be applied equally to all markets and product groups.
Many countries use import quotas, i.e. the limits on the amount of goods that can be imported as well as tariffs, i.e. the taxes on the imported goods, in order to keep the domestic price of goods at a level above the world price, and thus help the national industry to earn higher profits than under free trade. However, the costs of such protection can be high to society if the losses of consumers exceed the gains of domestic producers (Bhagwati & Srinivasan, 2009).
In the absence of quotas or tariffs, the country may import goods only if its world price is below the market price, which would be established in the case of complete absence of imports. Supposing that the government succumbed to the pressure from the domestic producers, so that it gets rid of the import quotas setting it at the zero level, i.e. the government prohibits any import of the certain goods. In that case, what would be the gains and losses from such policy?