Markets and monopolies. Markets. Competition. Monopoly

In a market economy the actions of buyers and sellers set the prices for goods and services. The prices, in turn, determine what is produced, how it is produced, who will buy it and what will be the mix of consumer and capital goods. Supply, the quantity of a product that suppliers will provide, is the seller’s side of a market transaction. Suppliers usually want the price that allows them to make the most money. Demand, the quantity of a product that consumers want, is the buyer’s side of a market transaction. Buyers want the price that gives them the most value for the least cost.

Whenever people who are willing to sell a commodity contact people willing to buy it, a market for that commodity is created. Buyers and sellers meet in person, or they may communicate by letter, by phone or through their agents. In a perfect market, communications are easy, buyers and sellers are numerous and competition is completely free. In a perfect market there can be only one price for a given commodity: the lowest price which sellers will accept and the highest which consumers will pay. There are, however, no really perfect markets. Competition influences the prices prevailing in the market. Prices inevitably fluctuate, and such fluctuations are also affected by current supply and demand.

Although in a perfect market competition is unrestricted and sellers are numerous, free competition and large numbers of sellers are not always available in the real world. In some markets there may only be one seller or a very limited number of sellers. Such a situation is called a monopoly and may arise from a variety of different causes. It is possible to distinguish in practice four kinds of monopoly.

State planning and central control of the economy often mean that a state government has the monopoly of important goods and services, e.g. most national authorities monopolize the postal services within their borders. A different kind of monopoly arises when a country, through geographical or geological circumstances, has control over major natural resources or important services, e.g. Canadian nickel and the Egyptian ownership of the Suez Canal. Such monopolies can be called natural monopolies. Legal monopolies occur when the law of a country permits certain producers, authors and inventors a full monopoly over the sale of their own products. These types of monopoly are distinct from the sole trading opportunities when certain companies obtain complete control over particular commodities. This action is often called “cornering the market” and is illegal in many countries. In the USA anti-trust laws operate to restrict such activities, while in Britain the Monopolies Commission examines all special arrangements and mergers that may lead to undesirable monopolies.

In the market systems, competition answers the basic questions of what, how, for whom and how much. Competition among producers is for the highest profits. Competition among consumers is for the best goods and services at the lowest prices. Obtaining the highest profits and the best goods at the lowest price are the only motives the market system considers.

In a market economy three basic resources – land, labour and capital – are bought and sold for the best price.


Economic growth. Costs of economic growth.


All societies must save some of what they produce today in order to have more for tomorrow. Every society must produce capital goods as well as consumer goods to meet future economic needs. In recent years, many people have argued that economic growth is a mixed blessing. The advantages of growth are fairly clear. As people produce more goods and services, the average standard of living goes up. Growth also keep people employed and earning income. Growth also provides the government with additional tax revenues, which enable it to spend more money on programs for education, water and air purification, medical care, highway construction and national defends. On the other side, there are disadvantages of the growth. They are following: the first-use of natural recourses that cannot be replaced; the second-generation of waste products; the third-destruction of natural environments, and finally-uneven growth among different groups in society.

In considering, the benefits and problems of growth, it is necessary to recall that to survive, every economy needs people, capital and natural resources. If these resources are overused now, future growth may be much slower.


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