Def: it is a market in which there is one seller. mono literally means one ,poly implies seller so monopoly means one seller .it is a market situation where there is a single firm selling the commodity & there is no close substitute of the commodity sold by the monopolist. It is very difficult for a new to enter the monopoly market. It is opposite of perfectly competitive market. The difference between the monopoly firm & industry disappears since the firm itself constitutes industry due to non-existence of any other firm dealing in the same product. The demand curve facing a monopoly firm is negatively sloped which means that a monopolist can sell more only at a lower price.
E.g.: it is difficult to find a pure monopoly yet Delhi vidyut board which supplies electricity in Delhi can be quoted case of monopoly.post &telegraph, issue of currency notes by RBI are some e.g. of govt. Monopoly.
FEATURES OF MONOPOLY:
Single seller: there is only one seller or producer of a commodity in the market. As a result, the monopoly firm has full control over to supply of the commodity. the monopolist may be an individual a firm or a group of firms or a govt. corporation or even govt. itself. naturally a monopoly firm can exploit the buyers by charging almost any price for its product because of exclusive control over the product. Monopoly firm itself is the price maker & not the price taker.
Absence of close substitute of goods: the product sold by the monopolist has no close substitute. though some substitute of the product may be available yet they are not close substitute on the sense that such substitutes are not identical to the product .as a result, the consumer will have to buy the commodity from the monopolist or go without it altogether. Thus monopolist does not face competition.
Difficult entry of a new firm: the monopolist controls the situation in such a way that it becomes very difficult for few new firms to enter the monopoly market & compete with the monopolist by producing a homogeneous or identical product. The monopolist tries his utmost to block the entry of a new firm. This barrier can be economic, institutional or artificial in nature.
Negatively sloped demand curve: the demand curve facing a monopolist is negatively sloped which indicates that a monopolist can sell more only by lowering price. Since monopolist is the only seller in the market. Therefore the demand curve facing him is the market demand curve. Again because the monopoly firm decides the output & price itself , therefore there is no supply curve as such under monopoly,
Price maker with constraint: since a monopoly firm is the only seller, it has substantial influence over the price of its product by manipulating its supply. It is in this sense that a monopolist is said to be a price maker. But his influence over price is not total. Price is determined by forces of demand & supply & a monopolist control only supply.
Price discrimination: unlike uniform price at which a product is sold in perfect competition, a monopolist can charge different price of his product from different persons & in different market areas. In other words. Price discrimination takes place in monopoly.
CONDITION UNDER MONOPOLY
The general condition of MR=MC for profit maximisation is also applicable to a monopoly firm. Monopoly's profit is maximum at the level of output at which MR=MC. In the beginning when level of output is very low, its MR is greater than MC because it is profitable for the firm to increase it output. But with expansion of output, cost goes on rising & a stage comes when MC becomes higher than MR or MR becomes even negative. In that case if the firm reduces its output ,its saving in cost will be more than the loss in revenue leading to increase in total profit of monopoly firm is more at the level of output where MR=MC. Thus to maximise profit a monopoly firm should produce & sell up to the point at which revenue from the last unit is equal to the cost of last unit.
TR, AR & MR
Total revenue (TR): TR may be defined as the total money receipts of the firm from the sale of its total output. It is the same thing as total expenditure by the buyers on the purchase of the firm's products.
E.g.: if a firm sells 100 fans @ rs 500 per fan, the total revenue will be equal to 100*500=rs 5000.
TR= price per unit*number of units sold
Average revenue (AR): it is the revenue per unit of commodity sold. AR is calculated by dividing the total revenue by the number of units sold.
AR= total revenue /no. of units sold
Marginal revenue (MR): MR is the addition to the total revenue by selling an additional unit of output. It is the net addition to the total revenue when an addition unit of output is sold. E.g.: suppose a firm earns total revenue of rs 400 by selling 20 toys & rs 415 by selling 21 toys. In this case rs 15(415-400) is the marginal revenue which is addition to the total revenue (rs 400) by selling an addition unit (21st toy) of output.
TR, AR&MR under monopoly
TR increases when MR is positive decreases when MR is negative & becomes maximum when TR is zero.
MR decreases with an increase in output because more of a product can be sold by reducing its price. In the beginning MR is positive & after a certain level of output, MR becomes negative.
TR increase with output initially &then it decreases. Thus graphically TR curve rises initially & then falls.
AR curve of a firm is in fact demand curve faced by the firm because AR of a firm = price of commodity.
MR is less than AR (MR<AR) & therefore MR curve is downward sloping &lies below AR curve.
TR curve is inverse U shaped because TR increases in the beginning & then decreases with output.
Table of TR, MR, AR under monopoly
OUTPUT
(units sold)
PRICE
(rs)
TR
AR
MR
1
2
3
4
5
6
7
8
20
18
16
14
12
10
8
6
20
36
48
56
60
60
56
48
20
18
16
14
12
10
8
6
20
16
12
8
4
0
-4
-8
EXPLAINATION: The above table indicates that monopolist can sell 2 units @ rs 18 each, his TR & MR being 36 &16 respectively. Now if he wants to sell more say 3 units, he can do so by reducing price from rs18 to rs16. Note that the firm has to reduce its price not only on additional units to be sold but also on earlier units' i.e. it has to accept rs2 each less on previous 2units also. This results in loss on previous units which were earlier sold @ higher price .as a result, MR or addition to his TR will be rs 12 & not rs16 which is AR. Hence it follows that in monopoly. MR is always less than its corresponding AR curve, like demand curve is downward sloping & MR curve lies below AR curve. At the point in which MR becomes zero at this point seller will stop selling his commodity this situation is '' zero cost monopoly".
NOTE: at the 6th unit he (seller) will stop selling water because after that it will be loss.
Ans1: INFERIOR GOODS:
When rise in income leads to fall in demand for a good that good is called an inferior goods .alternatively it is a good whose demand falls with increase in income. Thus there is inverse relationship between income & demand for a normal good.
In other words, goods whose income effect is negative are called inferior goods. Negative income effect means when money of the consumer rises, demand for such goods rises.
Eg: suppose with a given income a households consuming toned milk. When his income goes up, he starts consuming full cream milk. Clearly with rise in income, his demand for inferior good has gone down & that for normal good increased.
D
I`
I
D
0 Q1 Q X
QUANTITY DEMANDED
GIFFEN GOODS:
Giffen goods may be defined as those goods whose price effect is positive e& income effect is negative. in other words giffen goods are those goods in case of which price effect is positive that is the demand falls with a fall in price & rises with an increase in price & giffen goods are those goods in case of which income effect is negative i.e. the demand falls with a rise in income & rise with fall in income.
All giffen goods are inferior goods but all inferior goods are not giffen goods.
Reason behind this is that: in both case of inferior goods & giffen goods income effect is negative. But in case of giffen goods, negative income effect is always stronger than the substitution effect, while case of inferior goods. It may or may not be so.
Law of demand fails only if negative effect is stronger than the substitution effect. So that while law of demand may or may not fail in case of inferior goods, it must always fails in case of Giffen goods.
Inverse relationship between income and demand: in a situation of increase in income, less of the inferior good is purchased. The consumer prefers to shift on to superior substitutes, because now he can afford them. Buying less of a commodity at its existing price implies a backward shift in demand curve, or decrease in demand. On other hand, if income decreases, the consumer, already consuming an inferior goods, is further compelled to depend on it. May be he has to further cut his consumption of superior substitute and buy more of the inferior goods. It implies a situation of forward shift in demand curve or increase in demand for inferior goods. Following diagram illustrates these situations.
E.g.: as we above given the same e.g.: suppose with a given income, a household is consuming toned milk. When his income goes up, he starts consuming full cream milk. Clearly with rise in income, his demand for inferior has gone down & that for normal good has increased.
Positive relation between price and demand: as we know income effect and income consumption curve for normal or superior commodities. For such commodities, the income effect is positive, i.e., consumers demand more of these commodities with rise in the money of income.
* The commodity must be an inferior commodity having a substantial income effect with a positive mathematical sign. The consumption of the commodity should fall on account of rise in consumer's real income, when the price of the commodity falls.
* The income effect can substantial, when the consumer spends a very large proportion of his income on the commodity in question. As a result, a large amount of income is realised, when the price of the commodity falls.
*the substitution effect must be small so that the bigger positive income effect may outstrip the negative substitution effect making the price effect positive.
Ans 3: ADVANCED ECONOMY
AUSTRALIA: Australia's economic freedom score is 83.1, making its economy the 3rd freest in the 2012 Index. Its overall score is 0.6 point higher than last year, reflecting better scores in trade freedom, government spending, and fiscal freedom. Australia is ranked 3rd out of 41 countries in the Asia-Pacific region, and its score is well above the regional and world averages.
. While many large advanced economies have been struggling with growing debt burdens that result from years of heavy government spending, its gross public debt stands at less than 25 percent of GDP. Budget deficits have been under control owing to prudent public finance management that recognizes limits on government.
Australia's modern and competitive economy benefits from the country's strong commitment to open-market policies that facilitate global trade and investment. Transparent and efficient regulations are applied evenly in most cases, encouraging dynamic entrepreneurial activity in the private sector.
Population: 22.2 million
GDP (PPP):$882.4 billion
2.7% growth
2.8% 5-year compound annual growth
$39,699 per capita
Unemployment: 5.2%
Inflation (CPI): 2.8%
FDI Inflow: $32.5 billion
JAPAN: In the years following World War II, government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan develop a technologically advanced economy. Both features are now eroding under the dual pressures of global competition and domestic demographic change. Usually self-sufficient in rice, Japan imports about 60% of its food on a caloric basis. Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch. For three decades, overall real economic growth had been spectacular - a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the after effects of inefficient investment and an asset price bubble in the late 1980s that required a protracted period of time for firms to reduce excess debt, capital, and labor. Measured on purchasing power parity (PPP) basis that adjusts for price differences, Japan in 2011 stood as the fourth-largest economy in the world after second-place China, which surpassed Japan in 2001, and third-place India, which edged out Japan in 2011. Estimates of the direct costs of the damage - rebuilding homes, factories, and infrastructure - range from $235 billion to $310 billion, and GDP declined almost 0.5% in 2011.
GDP (purchasing power parity)
$4.389 trillion (2011 est.)
$4.41 trillion (2010 est.)
$4.242 trillion (2009 EST.)
GDP (official exchange rate)
$5.855 trillion (2011 est.)
GDP - real growth rate
-0.5% (2011 est.)
4% (2010 est.)
-6.3% (2009 EST.)
GDP - per capita (PPP)
$34,300 (2011 est.)
$34,600 (2010 est.)
$33,300 (2009 est.)
note: data are in 2011 US dollars
GDP - composition by sector
Agriculture: 1.2%
industry: 27.3%
services: 71.6% (2011 est.)
FRANCE: France's economy is the world's fifth largest. It accounts for 5% of world GDP and 6% of global trade.
Investors like France. The country is the top recipient of foreign investment in Europe and the second-largest recipient in the world.
A major force in the world economy
France is:
the world leader in luxury goods
number one in Europe in retailing and agriculture, and number two in the world in both areas
the world's third most productive country
Cutting-edge industries
39 French companies figure among the 500 largest in the world. Among them:
Agri-food
Fashion, luxury goods, and cosmetics
Automobiles and tires Electronics
Aerospace
Transportation and telecommunications
France is the world's most digitized country. Alcatel is the leading carrier of digital information. Orange, France's largest digital carrier is also the world's fifth largest.
. France's real GDP contracted 2.6% in 2009, but recovered somewhat in 2010 and 2011. The unemployment rate increased from 7.4% in 2008 to 9.3% in 2010 and 9.1% in 2011. The government budget deficit rose sharply from 3.4% of GDP in 2008 to 7.5% of GDP in 2009 before improving to 5.8% of GDP in 2011, while France's public debt rose from 68% of GDP to 86% over the same period.
GDP (purchasing power parity)
$2.214 trillion (2011 est.)
$2.178 trillion (2010 est.)
$2.148 trillion (2009 est.)
note: data are in 2011 US dollars
GDP (official exchange rate)
$2.808 trillion (2011 EST.)
GDP - real growth rate
1.7% (2011 est.)
1.4% (2010 est.)
-2.6% (2009 est.)
GDP - per capita (PPP)
$35,000 (2011 est.)
$34,600 (2010 est.)
$34,300 (2009 est.)
note: data are in 2011 US dollars
GDP - composition by sector
Agriculture: 1.8%
industry: 18.8%
services: 79.4% (2011 est.)
DEVELOPING ECONOMY
BANGLADESH: The economy of Bangladesh is a rapidly developing market-based economy Its per capita income in 2010 was est. US$1,700 (adjusted by purchasing power parity). According to the International Monetary Fund, Bangladesh ranked as the 43rd largest economy in the world in 2010 in PPP terms and 57th largest in nominal terms, among the Next Eleven or N-11 of Goldman Sachs and D-8 economies, with a gross domestic product of US$269.3 billion in PPP terms and US$104.9 billion in nominal terms. The economy has grown at the rate of 6-7% per annum over the past few years. More than half of the GDP is generated by the service sector.
GDP $282.5 billion (2011 est.)
GDP growth 6.3% (2012 est.)
GDP per capita $1,700 (2011 est.)
GDP by sector agriculture: 18.4%, industry: 28.6%, services: 53% (2011 est.)
Inflation (CPI) 10.7% (2012 est.)
Public debt 36.7% of GDP (2012 est.)
Revenues $12.67 billion (2012 est.)
Expenses $17.15 billion (2012 est.)
AFRICA: AFRICA'S importance for global security has risen dramatically in recent years. Africa has served as a staging-post for terrorist attacks both within the continent and in the Middle East. America's security outlays in Africa have shot up by $100m in the new East Africa Counterterrorism Initiative, and could soon dwarf economic development assistance.. A much smarter plan for Africa would save a fortune in the future by ending Africa's trap of poverty, disease, hunger and violence and bolstering Africa against the virus of terror. Specific and well-targeted investments over the coming decade would provide the foundation for self-sustained growth.
BRAZIL: the economy of Brazil is the world's sixth largest by nominal GDP and is expected to become fifth by the end of 2012. Brazil has moderately free markets and an inward-oriented economy. Its economy is the largest in Latin American nations and the second largest in the western hemisphere. Brazil is one of the fastest-growing major economies in the world with an average annual GDP growth rate of over 5 percent. In Brazilian reels, its GDP was estimated at R$ 3.143 trillion in 2009. The Brazilian economy has been predicted to become one of the five largest economies in the world in the decades to come. With still high levels of inequality, though it has diminished in the last years, the Brazilian economy has become one of the major economies of the world. According to Forbes 2011, Brazil has the 8th largest number of billionaires in the world, a number much larger than what is found in other Latin American countries, and even ahead of Japan. By the end of 2011, Brazil's economy had become the world's sixth-largest.
GDP $2.517 trillion (nominal)
$2.309 trillion (PPP)
GDP growth 2.7% (2011)
GDP per capita
$12,916 (2011) (nominal; 53th)
$11,845 (2011) (PPP; 74th)
GDP by sector agriculture: 5.5% industry: 27.5% services: 67.0% (2011)[2]
Inflation (CPI) 5.24% (March 2012)
Public debt 41.4% of GDP (2010 est.)
Revenues $1,005 billion
Expenses $926.8 billion (2011 est.)
EMERGING MARKET OF ECONOMY
RUSSIA: Russia's transformation from communism to a Wild West-like embrace of capitalism has had a staggering impact on its economy. The global boom in commodities has also helped Russia's stock market become one of the world's top performers. To be sure, investing in Russia still carries an enormous amount of risk.
Russia is the world's largest country in terms of land and has an emerging market to match, although it doesn't have as much foreign investment as many other emerging markets.
After the dissolution of the Soviet Union in 1991, Russia experienced dramatic changes, and after the government defaulted on much of its Soviet-era debt in 1998, the economy strengthened dramatically.
Essential facts about Russia:
Major industries: Agricultural machinery, tractors, and construction equipment; all forms of machine building, from rolling mills to high-performance aircraft and space vehicles; communications equipment; complete range of mining and extractive industries producing coal, oil, gas, chemicals, and metals; consumer durables, foodstuffs, and handicrafts; defense industries, including radar, missile production, and advanced electronic components; electric power generating and transmitting equipment; medical and scientific instruments; road and rail transportation equipment; shipbuilding; textiles.
Educated population: The Russian education system is excellent. Almost 43 percent of Russian adults are college graduates, and almost 90 percent of high school students' graduate. Russia has one of the world's highest literacy rates, so most of the people can function in a modern economy.
Rich natural resources: One of the world's leading producers of oil and gas, Russia produces iron ore, bauxite, and gold, too. Russia has rich agricultural soil and is a net exporter of grain and timber.
Russia can sustain its own people, and it can provide food and materials to other nations. The growth in India and China creates demand for Russia's resources.
Strong financial system: Russians concentrated on making their own system strong in the absence of outside investors, and with banks taking a hard line on risk, Russia made it through the 2008 global financial crisis with no problems.
CHINA: With a population of 1.3 billion, China is the world's most populous nation and its economy isn't far behind. China's economy grew at a blistering 11.9% clip in 2007, putting it on track to surpass Japan as the world's second-largest economy within the next decade. The shares FTSE/Xinhua China 25, an exchange-traded fund that invests in Chinese stocks, surged nearly 60% last year. Investors can participate in China through mutual funds, ETFs, and Chinese companies with listings on NASDAQ and the New York Stock Exchange.
BRAZIL: Brazilian stocks rose more than 70% in 2007, making the Latin American country one of the world's top-performing markets. Once an economic basket case, Brazil has whipped the inflation beast and its economy is expected to grow by more than 4% annually over the next five years. Investors interested in Brazil have a wide range of options, ranging from exchange-traded funds to several large companies like oil producer Petrobras, which has a New York Stock Exchange-listed ADR. Brazil's economic story is long and complex. For our purposes, only the basics are necessary to understand why it is not yet a developed country. When Brazil achieved its independence from Portugal in 1822 it had the lowest GDP per capita of any New World colony. It wasn't until the early twentieth century that the Brazilian economy began to show signs of life. The growth stopped in 1983 when Brazil defaulted on its foreign debt. This historic low-point is a good place to begin a more in-depth analysis of Brazil's economic history.
The IMF, as Brazil's lender-of-last-resort, held significant power over Brazil's economic policies. The Fund required Brazil to devalue its currency, cut public spending, freeze all wages, reduce the level of subsidized credit available, and cut the amount of foreign borrowing by state-owned enterprises as conditions for IMF loans. In 1983, Brazil's GDP fell 4%, employment fell 12%, and inflation was at 211%. For the next 25 years the country's economy barely grew at all.
