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Government as Monopolist

In: The Economic Foundations of Government

Author

Listed:
  • Randall G. Holcombe

    (Florida State University)

Abstract

Neoclassical microeconomics is based on the models of competition and monopoly. In the competitive model, buyers and sellers face many alternatives, so the terms of exchange are set by the market. No actor can exert noticeable influence on the the terms of an exchange since the individual on the other side of the exchange can always trade elsewhere.1 In the monopoly model, the seller is able to keep competing sellers out of the market, so can influence the terms of the exchange. Beginning economics students tend to believe that monopolists can sell as much as they want for any price they choose, and their teachers try to convince them that monopolists can raise their prices only by selling less, since the law of demand dictates that there is an inverse relationship between price and quantity demanded.

Suggested Citation

  • Randall G. Holcombe, 1994. "Government as Monopolist," Palgrave Macmillan Books, in: The Economic Foundations of Government, chapter 6, pages 92-109, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-13230-0_6
    DOI: 10.1007/978-1-349-13230-0_6
    as

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