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Updated: Jan 13th, 2021

Introduction

The table below shows statistics for the US in 2011 and 2006.

Current 2006
GDP $15,094,000,000, $13,314,500,000
Inflation 2.7% 3.2%
Unemployment 7.7% 4.6%
Interest rate 0.5% 4.6%

Source of data – The World Bank Group, 2012.

From the table above, the GDP increased from $13.314 billion in 2006 to $15.094 billion in 2011. Inflation rate declined from 3.2% in 2006 to 2.7% in 2011. Despite the increase and decline in inflation rate, the rate of unemployment increased from 4.6% in 2006 to 7.7% in 2011. Interest rates declined from 4.6% in 2006 to 0.5% in 2011. The low interest rate in 2010 was a measure taken by the state to stimulate money circulation. This would in turn lead to job creation thus reducing the unemployment rate.

Strategies that would encourage spending and creating employment opportunities

Stimulating the economy requires combined use of both monetary and fiscal policies. The Federal State can stimulate the economy by using fiscal policies. Fiscal policy entails the use of taxes and government spending to stimulate the economy. To increase consumer spending in the economy, the Federal government should put in place tax cuts. Reduction of tax increases consumers’ disposal income thus increasing spending.

An increase in consumer spending increases demand for goods and services. This creates an upward pressure on the supply. It in turn leads to expansion of production thus creating employment opportunities. Secondly, the Federal government may consider increasing government spending in the economy. Increasing government spending increases the purchasing power in the economy. This leads to an increase in aggregate demand in the economy. An increase in aggregate demand causes expansion of production lines, thus creating job opportunities (Mankiw, 2007).

Antitrust policies to curb operation of a monopoly

Antitrust laws were set up by the State to promote fair competition in the market. The laws prevent the creation of monopolies and price fixing. This aids in protecting consumers in the economy. The antitrust laws came to effect in the 1890s. An example of a scenario where the government used antitrust laws to stop a monopoly 50 years ago is the case of White Motor Company. The case was decided on 4th March 1963. The company produced motor trucks and sold them to distributors, dealers and various other large users. The company had selected specified regions for distribution, the prices to sell the trucks and classes of customer to sell to.

The court viewed that supplying of motor trucks to a specific region would “reduce competition in the sale of motor trucks and not foster competition” (Thomson Reuters, 2012). This would create a monopoly within the selected territories. In addition, the court also redefined the classes of customer they would sell the motor trucks to and the prices to charge. Failure to regulate the company would have led to the creation of a monopoly in the region. The company would have controlled supply and prices of tracks within the territories (Thomson Reuters, 2012).

Methods of identifying customers who should receive a discount

Price discrimination is a tool commonly used by monopolist firms. It entails charging different prices to different consumers. Giving discounts to groups of consumers and not all is an example of price discrimination. One way of identifying the customers who receive a price discount is by checking on their price elasticity of demand. That is, their sensitivity to price changes. A producer should give discounts to consumers who are more sensitive to price changes than those who are less sensitive. Secondly, the producer should be able to separate the group of consumers such that products sold at a discount in one market cannot be resold to another market (Mankiw, 2007).

Reasons why a monopolist may be efficient or inefficient in any economy

A monopolist is a market structure characterized by single producer and supplier of a commodity in the market. The firm sells a unique product which does not have substitutes. In addition, the market structure creates a barrier for entry into the industry. This market may be efficient or inefficient in the economy. A monopolist is inefficient due to lack of competition. The demand curve of the monopoly is the industry demand curve.

Therefore, the firm has the discretion of charging exorbitant prices thus exploiting consumers. Secondly, a monopolist causes inequitable distribution of income. This occurs when a monopolist earns an abnormal profit. It results to income being transferred from the consumers to the monopolists. Finally, a monopolist can use its abnormal economic profits to influence the political system in the economy. It may create political instability as a result of political abuse. Therefore, a monopolist creates loss of welfare to the consumers (Mankiw, 2007).

A monopolist firm may also be efficient in an economy. Provision of essential products in the economy cannot be left to market forces. It requires creation of state own monopolists. Therefore, a monopolist may be efficient in the production of such commodities. Secondly, a monopolist that exists as a result of economies of scale is likely to offer products at a lower cost compared to new firms entering the market. Therefore, such firms may be efficient in terms of prices in the economy. Finally, a monopoly power can be essential for innovation as in the case of Microsoft Company (Mankiw, 2007).

References

Mankiw, N. (2007). Principles of Economics. Mason: Thomson Higher Education.

The World Bank Group. (2012). The World Bank Data. Web.

Thomson Reuters. (2012). . Web.

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