Microeconomics Question from Walter E. Williams:Edit

Economists sometimes say that monopoly is "inefficient". Explain the meaning of "inefficiency" in this context. Show analytically how this inefficiency comes about.

AnswerEdit

Monopoly inefficiency occurs when frustrated would-be entrants into a market must turn elsewhere and produce something of lesser value due to barriers to entry. Such restrictions are often designed to protect existing producers and resources from competition. (EX: tariffs, migrant worker restrictions, etc). In such cases, the gains are concentrated on a small group, whereas the losses on spread upon a large, diverse group.

Basially the inefficency in this sense comes from the creation of monopoly by government.

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