Author Question: If ration coupons are used to determine who gets the products available, what happens if the ... (Read 36 times)

HCHenry · **on:** Jun 29, 2018

If ration coupons are used to determine who gets the products available, what happens if the government allows individuals to trade them?

What will be an ideal response?

Question 2

A monopolist, unlike a perfect competitor, has total control in its market because it is the single producer. Why, then, must a single-price monopolist decrease its price if it wants to increase its output?

What will be an ideal response?

gabrielle_lawrence · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The result is very similar to a system of price rationing. The price of the rationed good will rise to the level it would have been in a free market.

Answer to Question 2

Because the monopolist does control the market, the monopolist sets the price at the maximum level that sells all the output the monopolist produces. This maximum price is determined from the demand for the product. The demand curve shows that the only way to increase the quantity consumers will buy is to lower the price. As a result, when a monopolist wants to produce more output, demanders will not buy the additional output at the initial price. As the demand curve indicates, in order to sell the extra production, the monopolist must lower its price.