(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]
Question 1 Report
(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.)
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