Monopoly And Monopsony: Examples Of Cocktail Party Economics

Scarcity, or better explained as the “fundamental economic problem of having seemingly unlimited human wants in a world of limited resources” relates once again to another series of economic issues and concepts. To be specific, it relates to efficiency, equity and market failure. Efficiency tries to create the largest amount of surplus and equity tries to make sure that each party is equally represented in the market. Market failure is a result of a decrease in supply, when there is an increase in demand. Therefore, supply does not meet the demand for a particular product in the free market. Scarcity and market failures go hand in hand, this is explained in Cocktail Party Economics by Adomait and Maranta “There is not enough to go around for

In a market we have both buyers, and sellers. In a perfect world these buyers and sellers price products and services at the equilibrium. In this situation prices would be described as “simply the fallout of what people want and the underlying opportunity cost to provide for those who want” (116). What happens when this becomes unbalanced, when there are more buyers than sellers or vice versa? This creates two situations, one called monopoly and the other called monopsony. Monopoly is explained by being the only seller of something. Monopolies have the ability to price their product at any price on the demand curve. This becomes an issue because monopolies are more focused on maximizing their own profits

However, it is a difficult problem to tackle. Companies create pollution in the environment, but some of these companies are necessary in the economy, and in society itself. Without them there may be economic failure and distress. There are ways that this issue can be resolved, either the people polluting pay, or the people affected by the pollution pay. It does not seem to make sense to make someone who is becoming a victim pay directly to fix the problem, however, it will cost a great deal more for the victim to fight to make the polluter pay. This would involve going to court to solve the problem, which is not at all efficient. The best way to solve this issue with the victim is for all victims to act together as one and create economies of scale that make the cost worth it. In other situations government can in fact put a direct price on solution, making the polluters pay instead of the victims. There are three ways that the government can impose this price. They can put a tax on pollution, create a capped amount of pollution permits and sell them, or create regulations on the level of pollution a company produces. The most efficient is using the tax, or cap this uses the least amount of scarce resources. Using all of these methods creates a polluter that becomes more environmentally aware because they now realize that polluting will infer a cost. This