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OPEN MARKET OPERATIONS: The Federal Reserve System's buying and selling of government securities in an effort to alter bank reserves and subsequently the nation's money supply. These actions, under the direction of the Federal Open Market Committee, are the Fed's number one, most effective, most often used tool of monetary policy. If, for example, the Fed wants to increase the money supply (termed easy money) it buy's government securities. If the Fed chooses to reduce the money supply (called tight money) it sells some government securities.
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                           MONOPOLY, PROBLEMS: Three problems often associated with a market controlled totally by a single firm are: (1) inefficiency, (2) inequity, (3) political abuse. While these problems are typically associated with a monopoly market structure, hence the title monopoly problems, they also relate to oligopoly and monopolistic competition to a lesser degree. Monopoly is a market structure containing a single firm that produces a unique good with no close substitutes. As such, monopoly is a price maker that has complete control over the supply side of the market. And as the only firm in the market, the demand curve facing monopoly is the negatively-sloped market demand curve. The result of monopoly's single-seller status and market control are three notable problems: InefficiencyThe most noted monopoly problem is inefficiency. Market control means that a monopoly charges a higher price and produces less output than would be achieved under perfect competition. In addition, and most indicative of inefficiency, the price charged by the monopoly is greater than the marginal cost of production.Monopoly produces the quantity of output that maximizes profit, like any other firm, by equating marginal revenue and marginal cost. However, because monopoly faces a negatively-sloped demand curve, price is greater than marginal revenue, meaning price is also greater than marginal cost and production is inefficient. Income InequalityA lesser known problem with monopoly is an inequitable distribution of income. To the extent that monopoly earns economic profit, consumer surplus is transferred from buyers to the monopoly. Buyers end up with less income and the monopoly ends up with more. In addition, because price is greater than marginal cost and a monopoly receives economic profit, factor payments to some or all of the resources used by the monopoly are greater than their contributions to production. A portion of this economic profit is often "paid" to the owners of the labor, capital, or land, although not really "earned." To the extent that monopoly is able to maintain single-seller status and market control, income continues to be transferred from buyers to the monopoly and to the monopoly resource owners. And to the extent the overall economy is comprised of monopoly sellers, this redistribution of income can be extensive. Political AbuseA third potential problem, one tied directly to the concentration of income in the hands of the owners of monopoly resources, is the abuse of political power. The monopoly could use its economic profit to influence the political process, especially policies that might prevent potential competitors from entering the market.A monopoly might be inclined to divert a portion of its economic profit to government officials and political decision makers to achieve "favorable" legislation and regulation, such as restrictions on competition from foreign companies. To the extent that monopoly is successful, the problems of inefficiency and inequity are perpetuated. A Little GoodAlthough monopoly is the benchmark for an inefficient market structure, it is not necessarily all bad. There are a few redeeming virtues with monopoly. A monopoly might be inclined to use its economic profit to do good deeds, such as establishing charitable foundations, funding the fine arts, and supporting public education. A number of charitable foundations, theaters, museums, and universities carry the names of monopoly benefactors.In addition, monopoly profits can be and have been used to invest in technological research and development, factory construction, and other capital goods that are intended to expand the profitability of the monopoly, but also promote economic growth economy-wide.
Recommended Citation:MONOPOLY, PROBLEMS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2023. [Accessed: March 21, 2023].
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Today, you are likely to spend a great deal of time strolling through a department store seeking to buy either a how-to book on wine tasting or a bookshelf that will fit in your closet. Be on the lookout for bottles of barbeque sauce that act TOO innocent.
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Okun's Law posits that the unemployment rate increases by 1% for every 2% gap between real GDP and full-employment real GDP.
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"When the solution is simple, God is answering." -- Albert Einstein
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ASEAN
Association of South East Asian Nations
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