What Do the Economic Terms Oligopoly and Monopoly Mean?
An understanding of monopolies and oligopolies requires a basic understanding of the fundamentals of economy and economics. An economy refers to activities related to the production and distribution of goods and services in a particular geographic region. Economics is the study of these systems and how the forces of supply and demand shape these systems and their resources.
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Macro and Microeconomics
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Macro and microeconomics are the two main subdivisions of economics. Macroeconomics studies the broader view of economics: the total output of a nation and the way a nation allocates resources, land and labor. It is primarily concerned with maximizing production levels and promoting trade and growth for future generations. Microeconomics addresses these same issues,] but typically through a more scientific approach on the level of the individual within the society. It is concerned with human behavior and why individuals choose to make the decisions they do, such as why a business chooses to hire a certain number of employees or why customers buy one product over another. Monopolies and oligopolies are studied within the field of microeconomics.
Supply and Demand
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The concept of supply and demand drives economies and is a fundamental part of a market economy. A market economy is a system in which economic decisions and the pricing of services and goods are based on supply and demand. Demand refers to the quantity of a product or service desired by others and supply represents how much of the product or service the market can offer. Therefore, a market is controlled by how much demand there is for an item or service and the supply available.
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Monopoly
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A monopoly is an enterprise within a market economy in which there is only one producer or seller for a specific item. This can be a result of social, political or economic reasons. For instance, a government may have a monopoly over a resource it wishes to control, such as oil or electricity, or a company may have a patent on a product, preventing other companies from entering the market at all. The company or government that holds the monopoly controls the supply and sets the price because there is no competition for the product or service. Consumers' demand does not control the market in a monopoly. Some examples of monopolies in the early 2000s include the computer, commercial seed and oil industries and often local utilities.
Oligopoly
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An oligopoly is similar to a monopoly because the market of a certain item or service is controlled by only a few firms. Unlike a monopoly, however, the prices in an oligopoly must remain competitive. In an oligopoly, the products offered by the different companies are almost identical to one another. If Company A decides to make its price significantly lower than Company B's price, Company B must then lower its price if it wishes to continue making a profit, thus keeping prices competitive. Some examples of oligopolies in the U.S. in the early 2000s are airlines, soft-drink and beer companies, cereal manufacturers and the film and television production industries.
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References
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very useful!
