How a monopoly creates market failure This is the situation in the market parameter where the allocation of goods and services is not efficient. The inappropriate allocation of resources will automatically create some ridges in the economy that are not suitable thus; remedies are immediately needed to be in place. This situation is always common in regions where there is dominance in monopoly. The monopoly structure will always confine the resources to itself making the rest of the economy to strive in order to be in safer situations.
The monopoly in this case is the Italian company Luxottica that makes all sunglasses such as Ray-Ban, Vogue, and Revo. Most individuals in the economy will be displaced from their jobs and this will lead to a decline in the living standards (Lipsey and Chrystal, 56). The monetary flow in the economy will also reduce because most of the avenues that generate revenue will be eliminated from the platform of developing the economy. Behavior towards the issue The issue of market failure is highly condemned in the society because it does not contain any elements that promote economic growth and development.
Households and individuals will greatly deviate from this form of situation due to its extreme defects. Firms in other market structures will acquire the necessary knowledge in order to keep fit in the market of producing quality sunglasses. Government interventions The government will have to intervene through the implementation of various policies that will create a uniform distribution of resources. This ensures that the competition within the sunglasses will be fair enough to facilitate an equivalent growth and development platform as this is the main driver of a society.
The government will always intervene through various ways but the major one in the monopoly market is by heavy taxation Luxottica Company. The taxation aspect ensures that the pricing of the products and services from the dominant structures will always be fair enough thus affordable to the households (Lipsey and Chrystal, 88). The taxation factor will also ensure that there is a fair competition for all the market structures in the economy. Predictions on the behavior In the short run, the effects may not be that intense thus the households may have a chance to afford daily needs that sustain their necessities.
The greatest impact of the market failure is felt in the end where resources are not available thus; prices of necessary commodities will automatically increase. There is a public available to address the issue is the government intervention that regulates the situation of high pricing by the Luxottica Company through the principle of taxation. The regulation will therefore bring a positive aspect in for of fair completion of market structures and affordable prices to low income earning households (Lipsey and Chrystal, 102). Conclusion The market failure is a defect that is not promoting the growth and development of the economy.
It may be prominent because organizations find it expensive displace the Luxottica Company. In order to create a uniform distribution of resources, the government intervention is always appropriate in order to make the situation to decline (Lipsey and Chrystal, 203). The government intervention will at least enable the household to retain job opportunities that are generating income that will facilitate a sustainable living standard. Firms will also have the opportunity to compete fairly in the sunglasses market, as the government regulations will always discourage unfair practices that may be facilitated by Luxottica Company in the competitive market. Work cited Lipsey R.
and Chrystal, K. Micro Economics. Oxford: Oxford University Press, 2007. Print.