Test Flashcards
Monopoly
Means one seller. This occurs when a specific individual or enterprise is the sole supplier of a particular good or service.
E.g Iarnrod Eireann
Assumptions of monopoly: Sole Supplier
There is only one firm and it supplies the entire output of the industry. As such we do not distinguish between the firm and the industry as in effect the firm is the industry.
Assumption of monopoly: Barriers to entry
Since there are no other firms in the industry, the monopolist could earn SNP. This situation will occur in both the long run and short run due to barriers to entry.
Assumptions of monopoly: Maximise profits
The monopoly firm will aims to maximise its profits and will produce where MC=MR and MC is rising faster then MR. Since the objective is to earn maximum profits the monopolist will enjoy SNP.
Barriers of monopoly: Ownership of raw materials
A company may have complete control over the source of essential raw materials and hence has monopoly power e.g gas drilling firm.
Barriers monopoly: cartels/collusion
Firms may enter into trade agreements with similar companies and agree to split up the market. Thus ensuring no competition exist
Mergers/ takeover
A company could gain monopoly power by merging with or taking over a rival company thus eliminating competition
Disadvantages of monopoly: Exploitation of consumer
The SNP the monopolist achieve may be due to their exploitation of consumers. As the sole supplier of a good or service the monopolist may abuse their position by pushing up prices. Leaving consumer with no alternative but to purchase it.
Disadvantages of monopoly: inefficient use of scarceness resources
The monopolist makes inefficient use of society scarce resources. It does not produce where average cost is at its minimum, but where MC=MR. This is due to lack of competition and it wastes economic resources.
Disadvantages of monopoly: less efficient/ innovative
Due to the fact that monopolist have a dominant position they may not have to necessarily compete in the market place and consequently may not engage in R&D or innovation
Long run equilibrium of monopoly
S.P.E.C.S
S SNP: SNP is earned because AR>AC. These profits can continue due to barriers to entry.
P Price/Output: The firm produces at P1 and sells at Q1
E Equilibrium: This occurs at point E where MC=MR and MC is rising faster then MR
C Cost: The cost of producing is shown at point B. The firm is not producing at minimum point of the AC
S Scarce Resources: Since the company is nit producing at the lowest point of AC it is said to be wasting scarce resources
GDP
Gross domestic product is the final value of the goods and services produced within geographical boundaries of a country during a specific period of time,normally a year.GDP growth is an important indicator for a country economic performance.
GNP
Gross national product is the total value of the goods and services produced by the citizens of a country during a financial year, irrespective of location. It measures the output of business both domestically and abroad. GNP basically measures the country people contribution to its economy
GDP vs GNP
In Ireland’s case GDP is greater then GNP. This is because net factor income from abroad is usually negative due to
- Repatriation if profits by MNC’s resident in Ireland exceed profits earned by Irish MNC’s abroad and returned to Ireland
- interest payments on Irish debt held by non-residents exceeds the interest payments that’s residents receive on non Irish debt
GDP is a better indication of a country economic activity while GNP is a greater measurement of the standard of living.
Limitations of national income statics
Population distortions: if national income grows at a slower rate then population, then average income per head may decrease and the average standard if living may fall. Per capita income may become more meaningful measure of standard of living than national income.
