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Homework answers / question archive / Monopolistic behaviors are abhorred by society and governments around the globe adopt antitrust laws to prevent or at least discourage these behaviors
Monopolistic behaviors are abhorred by society and governments around the globe adopt antitrust laws to prevent or at least discourage these behaviors. Yet, the very laws legally sanction monopoly, as it seems inevitable. We discussed deadweight loss in class at length and we know that monopolists’ decisions often result in deadweight loss. Explain in simple terms (as if you are talking to an average person) the meaning and implications of deadweight loss, the mechanism through which it happens. What can we, as society and business community, do to discourage monopolists behaviors, curtail their power and undo their damage (Tip: your short essay should ideally draw upon fundamental basic principles of the economic way of thinking).
Meaning of deadweight loss is that there is a loss which arises because monopolists charge a higher price for their goods and services. For example in education institutes, a professor teaches a course and is paid a handsome sum, however the students don't understand the subject which the professor teaches, now as they don't understand they should pay a lower sum, but they end up paying a greater sum, this leads to discrepancy in market efficiency and a deadweight loss of students not understanding the concept as the students indirectly earn less because they don't understand and incur a loss.
The implication of this is that there is a loss in economic efficiency wherein the output the students generate is not as high which generates deadweight loss in the economy via reduced productivity in generating the economic output.
As society and business community we can help implement and initiate laws to help the government bring about laws in increasing the level of competition and reducing the monopoly power. Increase the level of information in the economy and create limited barriers to entry and exit, increase access to credit and help bring about new firms and enterprises which curtails monopoly power and increases price competition, wherein consumers are charged a fair price and there is no market failure. Bring about as much price competition as possible to order to increase the level of market efficiency in the economy. Thus the net benefit is high and consumers gain the maximum net benefit for the higher quality lower priced products because of competition.
