Monopolies: Economics and Disposable Income Essays

Submitted By safcforlife
Words: 674
Pages: 3

25 Mark Question
A monopoly is a large company which holds more than 25% of the market that it specialises in, such as Tesco and Microsoft. There are a number of advantages and disadvantages with monopolies. Some positives are that they provide employment for locals and they help the field in which they specialised to innovate and improve their products. However, there are some disadvantages such as, there is less choice for the consumer and there will be shortages of products available.
Toys 'R' Us is a nationwide store, so it provides employment all over the country as there are hundreds of stores all across the country. This means that the locals have a better opportunity to find work. SInce more people will be employed, people can be specialised to certain tasks meaning they will become used to their job and therefore become more efficient. This is an example of a Managerial Economy of Scale. This also means the people employed will get more disposable income which will lead to more luxuries being bought as people are able to spend more after using their money on necesseties. With more goods being bought, companies will earn a higher profit, which can be used to employ more people. Overall this means more money will be put back into the economy as more goods are being bought due to consumers earning a higher disposable income.
The higher profits that the companies earn can also be used to innovate and improve their own products which they specialise in. For example, back in 2006, the Nintendo Wii was a "must have toy" meaning lots of people wanted one. With the improvement in technology, consumers will have more choice which is exactly what they want. This relates to theterm "consumer is king" which essentially means if the consumer wants it, companies must supply it as the profit incentive is massive. Innovation means that companies can produce new versions of their products year on year with improved technology that people must have, just like the Nntendo Wii, as they want the latest gadgets because they don't want to be left behind. Over time, Economies of Scale will benefit consumers as prices can be reduced because of the lower costs the companies have to pay. These lower costs mean greater profits which in turn, means companies can keep innovating.
However, monopolies do have issues. For example, there is less choice for consumers as one company will dominate the market, so all the latest and best products will come from the big…