Do monopolies help or hurt a)consumers and b) the economy as a whole? Provide examples for your argument.?
Monopolies hurt both the consumers and the economy as a whole.
A monopoly occurs, as you probably know, when a firm is the sole supplier of a particular product to a market. When the firm has market control, it does not need to sell its product at the market equilibrium price and quantity (where price is equal to the marginal cost of production). Instead, it can sell the product at a higher price and lower quantity such that they maximize profit (equated to be the price where the marginal revenue = the marginal cost of production).
So at this higher price and lower quantity, what happens to consumers? Well, higher prices are always bad for consumers, reflected by the fact that they purchase (or, even, are able to purchase) less of the good, thus lowering the quantity. What is known as the "consumer surplus" is reduced in a monopoly. Consumer surplus is a pretty complicated concept, which I will not go into now. While the producer gains in a monopoly, he does not gain more than what the consumer loses, so overally, society and the economy as a whole suffers as a result of a monopoly.
Monopolies hurt the consumer because competition is what keeps prices down. ex: If there was only one gas company, then the prices would be sky high because people would still pay, just like the the Steel industry back under Carnegie (I think, I get him and Stanford mixed up). They do help the economy to some point though, because they have maximized profits, so can pay out more taxes which helps recession. On the other hand though, it keeps the little guy out of business, so progress is limited.
Are you just curious, or writing an essay? lol...
In the USA the governments hold many monopolies, such as licenses, permits, amounts charged on traffic fines, vehicle registration prices, essentially all government fees are set by decree and not regulated by supply & demand.
Years ago they were reasonable, now however they're way out of line & essentially are discouraging very small businesses to try new ventures.
Government is supposed to not make a profit on services or products, but check out this government operated monopoly business:
By the way the U. S. Mint is a division of The U. S. Treasury Department.
There are two major costs to society from a monopoly. The first has already been described, namely, the loss in consumer surplus which is also known as the Harberger Triangle.
The second is much more important. Because of a lack of competition, the producer has little incentive to reduce his costs and use better methods of production. This difference between actual costs and the costs resulting from adopting "best practices" method of production is called X inefficiency.
The McKinsey Global Institute evaluated certain industries in India, Japan, and Russia and found that their productivity lagged way behind the US. These were industries that did not face competition either domestically or from imports. This Institute is affiliated with the prestigious consulting firm and has a website where you can see the actual studies.
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