Monopolies Essay

Economy can be defined as the production and consumption of goods and services and the supply of money in the market. It can also be defined as the process or system by which goods and services are produced, sold and bought in the market.

Monopoly is a market characterized by a single seller selling a unique product in the market. It is rare to find pure monopolies operating in practice in the real world. In this market, the seller neither faces competition nor has any close substitutes of the products. Example of products in monopoly market is electricity, water, cable television and local telephone services. Factors like government license, ownership of resources, copyright and patent and high starting cost make the entity a single seller

There may be imperfections in the operation of the market forces introduced by monopolies market, or conditions in which the prices may not reflect real costs or benefits. Not only that prices of goods or services may be far above opportunity costs or that payments to resource owners may be far above or below the value of their contribution to real output, but also because social costs and benefits may be disregarded by individuals in their accounting although these costs or benefits may be very important from the point of view of social welfare which carries a significant weight in the Islamic system (Sheikh Ghazali Sheikh Abod, Syed Omar Syed Agil, & Aidit Haji Ghazali, 2008).

Price discrimination occurs when monopolist is the price maker and the existence of monopoly power as there is no competition in the market. The monopoly power also allows the firms in the market to use markup pricing where the seller would add an amount to the price of a goods to cover up the overhead costs and to gain extra profit. These markups are the main contribution for their income. The price may rise more than the amount of tax depending on the demand and supply conditions in the

In order to maximize the profits, monopolists increase the price and reduce the quantity of outputs when demand is inelastic and vice versa when the demand is elastic. This will create an underutilization of the resources and the ramification is the increase in unemployment and dead-weight loss in the society. The higher price charged by the monopolists obviously will reduce the wages for the laborers and thus increases the social cost of monopoly. According to Wan Sulaiman Wan Yusoff (2014), these situations are not consistent with the injunction of Al-Quran and Al-Sunna, because they are antisocial and exploit as well as deprive the poor and the community as a