Lesson 33 pg. 92 - 94

Question 1

Define monopoly

Answer 1

monopoly - the situation that arises when a single firm is the only supplier of a good for which no substitute exists

Question 2

Describe monopoly

Answer 2

> economists call it a form of imperfect competition
no competition at all
following are necessary: firm must be sole supplier of good or service, no close substitutes for firm’s product, entry into market must be blocked
monopolistic producer can set high prices, lower quality of its products, and still sell its goods because consumers cannot buy from anyone else
monopoly may make huge profits at consumers’ expense

Question 3

Describe legal monopoly

Answer 3

> governments often grant legal monopolies in certain areas to encourage (in forms of patents, trademarks, or copyrights) production
government protection is needed in order for people to have incentive to work to produce things that can ultimately benefit everyone

Question 4

Describe natural monopoly

Answer 4

> occurs when single firm can fill demand for a good more efficiently than if there were multiple firms in the industry
a large, efficient utility that has a natural monopoly is often able to provide goods at a lower price per unit than if several small, less efficient companies divided the market among them
usually some government agency regulates prices of goods provided in order to make certain that companies do not take advantage of customers