Question

Briefly discuss the market failures of monopolies.

Answer 1

Market failure occurs when the allocation of goods and services is not efficient means there is some amount of welfare loss associated with the market outcome. Basically, the self-driven incentive differs from social welfare incentives then allocation tends to become inefficient. The events which lead to market failure are as;

1) Market dominance by monopolies leads to charging a higher price and under efficient output is produced.

2) Imperfect information

3) positive externalities where the social benefit of consumption exceeds the private benefit.

4) negative externalities where social cost of production exceeds private cost.