(a) Define market in economics. [2 marks] (b) State any three features of a monopoly. [9 marks] (c) Outline any ee sources of monopoly power. [9 marks]

Answer Details

(a) A market in economics is any arrangement or system through which buyers and sellers of a commodity are brought into contact with one another to exchange goods and services at an agreed price. It need not be a particular physical place; contact may be by telephone, internet or agents.

(b) Three features of a monopoly

• Single seller: there is only one producer or seller of the commodity, who is the industry.
• No close substitutes: the product has no near alternatives, so buyers cannot easily switch away.
• Price maker with barriers to entry: the monopolist can influence price by controlling output, and new firms are prevented from entering the industry.

(c) Three sources of monopoly power

• Legal grants: patents, copyrights, licences or a government franchise that give one firm exclusive rights.
• Control of a raw material or key resource: ownership of an essential input or the sole source of supply shuts out rivals.
• Economies of scale (natural monopoly): where a single large firm can supply the whole market at lower cost than several firms, discouraging entry.

(Mergers and takeovers, and ownership of special technical knowledge, are other valid sources.)