Market Mechanisms

8 Pages 2055 Words

Market Mechanism is the use of the market prices and sales to get the desired output, also known as Adam Smith’s invisible hand. Not always will you get the best outcome, the market can fail too, which will cause market failure. Some major factors that cause market failure are monopolies and the need for public goods. When these factors occur the government will try to intervene and set policies to correct these problems.
The first major factor that contributes to the market failure is a monopoly. A monopoly can be natural if one firm can produce a certain amount of goods or services at a lower cost than any other number of firms. Most companies are monopolistic they will more than likely produce at the lowest possible cost and sell it for the least amount that they can, to drive the competition out. Once this is done, they will still produce at the lowest cost possible, but they will charge a price above the marginal cost, maximize their profit. This is not good for the consumer at all, once there is a monopoly then the consumer will not be able to get the product or service anywhere else either locally or nationally other than from that one company, and they would have to pay an amazing amount of money to get that product or service. Some of these companies that go unregulated may also produce to much or too little of the product. The threat of competition though may limit the extent to which monopolist restrict output and raise prices, this can be good for the consumer.
I think that Hoyts Cinema here in the Capital region is definitely a monopoly. It drove a couple of different theatres that we had out of business, and now it’s like the only one here, in almost every mall. Price of a tickets were about $6.50 each going back five years. But now they cost $9.00 each, just to see a movie, then you have to buy popcorn and drinks, which cost well above their value. So once you leave the movie theatre you’ll spend ...