(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]
Explanation
(a) Market in economics is defined as an arrangement by which buyers and sellers are brought into close contact for the purpose of transacting business. Such an arrangement is facilitated by telephone, telegraph system, postal communication, a particular location, etc.
(b) Features of a monopoly are as follows:
(i) there is only one seller of a product.
(ii) entry is restricted. Barriers to entry are so severe that new firms find it difficult to enter the market.
(iii) it has the power to control price or output but not both.
(iv) there is an imperfect knowledge or information about market conditions.
(v) there is no perfect substitute for the products sold by the monopolist.
(C) Sources of monopoly power:
(i) natural monopoly: Control over certain natural resources can give rise to a monopoly.
(ii) government monopoly: This occurs when a government sets up a corporation to provide certain services and such firms are protected from competition.
(iii) legal monopoly: monopoly can be created by law. Examples: Patent right and copyright which protect inventors and artists respectively.
(iv) merger of firms.
(v) technological monopoly.
(vi) huge capital required to set up the business.
(vii) limited market.
(viii) cartel e.g. OPEC.
(ix) takeovers.