¡Escribe tu texto aquí!5.CAUSES AND EFFECTS OF MONOPOLY POWER
The goal of the present study is to analyze the causes and effects of the monopoly
power of companies.
The rest of the paper is organized as follows: The second section explains causes of
Monopoly power and the third section presents the effects of monopoly power.
Causes of monopoly power
There are many incentives for companies to want to have monopoly power:
In monopoly firms make high levels of benefit. Therefore, they can spend this profit
On investing in Research and Development. This can lead to the development of the
New products that can benefit consumers.
Economies of Scale. Monopolies can produce a large output. Therefore, they can
Benefit from lower costs. This can be passed onto consumers into the form of lower
Prices. Economies of scale are particularly important in industries with high fixed
Costs, e.G. Car industry and airplane travel.
Firms may become monopolies because they are successful and produce goods
Efficiently. Domestic monopolies may be necessary to compete on an international
Effects of monopoly power
A monopoly probably cause the following effects:
If a company has monopoly power, then it will have less competition and will set
Prices, the monopolist is able to reduce quantity supplied to increase the price; less
Choice for consumers; monopoly firms will be able to increase their incomes and
Make higher profit.
With higher prices and less choice for consumers, monopolies will cause allocative
Inefficiency. If monopolies get too big they may experience diseconomies of scale.
Monopolies are able to use their monopoly power to pay lower prices to their
Suppliers, e.G. Supermarkets are able to pay low prices to farmers, and the farmers
Don’t have any alternatives to sell their produce.
Monopolies generally lead to higher prices and are more inefficient. However, may
Be the best outcome for some industries with substantial economies of scale. This
Investigation has a number of limitations to be considered in evaluating its findings.
6.PROBLEMS AND SOLUTIONS OF SUBPRIME MORTGAGES CRISIS
The goal of the present paper is to analyze problems and solutions of the Subprime
Mortgages Crisis. This paper will focus on the events of the crisis occurred between
2007 and 2010 in the USA.
Problems of Subprime Mortgages Crisis
The Subprime Mortgages Crisis caused serious problems, such as a slowdown in
The USA economy, a large increase in unemployment levels and billions in bank
Losses. The U.S. subprime mortgage
industry collapsed in 2007. More than 25
Subprime lenders announced significant losses and declared bankruptcy. In August
2007 the number of residential foreclosures increased 93 per cent in relation to July
2006. The crisis resulted in profound decline in output and employment.
The foreclosure resulted in 524,000 fewer jobs being created in 2008 and losses of
$6.6 billion in tax revenues in 10 states. Due to these massive losses the financial
Institutions reduced both their capacity and their intention to take risks.
Solutions to reduce the Subprime Mortgages Crisis effects
Seven of the largest central Banks in the world, including the Federal
Bank of the USA, declared the reduction of interest rates at the same time. The
US Congress authorized the financial rescue plan, with 900 billion dollars.
The Federal Reserve injected capitals to the financial market for bring high liquidity.
The injections of various countries increased considerably, especially after Lehman
Brothers went to bankruptcy. The United States banned the short selling of stocks;
The Securities and Exchange Commission of USA emitted new regulations to
Guarantee the transparency of the operations.
Finally, there was cooperation between several countries; the American Federal
Reserve Committee had achieved a currency exchange agreement with the central
Banks of Europe, United Kingdom, Japan, Canada and Switzerland to reduce the
Lack of liquidity in the financial market.
This study has illustrated the subprime mortgage crisis and the measures adopted
By the US government and the Federal Reserve Bank. This investigation has a
Number of limitations to be considered in evaluating its findings.