Entrepreneurship & Competition/Monopoly
Question a
Entrepreneurship can be defined as the utilization of existing resources and opportunities with the aim of making future gains. It is a very important factor to economic growth of the American economy because of several reasons. First, it is provides people with a platform to be self sufficient. This means that the people who maximize the use of available resources and opportunities can raise their standards of living and at the same time for the employees. This will be very healthy for the economy because an increase in the welfare of the citizens means that the economy is growing and developing.
Entrepreneurship plays a vital role in the development and research program in the American economy. The world today is very technologically oriented, this calls for innovativeness. Entrepreneurs lead the way in terms of providing innovativeness in the American economy. This helps in the improved technological standards which are good for the economy.
Entrepreneurship leads to Wealth creation in the economy. Te main aim for entrepreneurship is to make future gains, which is simply to create wealth. When individuals take up business opportunities, the wealth gains obtained help in improving the economy of America. This is in terms of tax payments, increasing the gross domestic product, providing foreign exchange currency from exports and providing goods and services for the economy. Therefore, entrepreneurship benefits both the individual and the economy.
Entrepreneurship helps in the Creation of employment opportunities in the American economy. Once an entrepreneur starts and enterprise or any business, he/she will need employees. The increase in the number of entrepreneurs in the American economy will imply that more and more people will be getting employment opportunities. A reduction in the unemployment actually benefits the economy because it raises the people’s living conditions as well as eradicating poverty since people will be able to fend for themselves.
Entrepreneurship provides challenges and increases the prospects of the individuals in an economy. Individuals use entrepreneurship to explore new challenges and try prospects that have potential gains. In the American economy, this will be very important because with enterprising citizens, the economy will remain vibrant with promising financial and asset markets.
Question b
A competitive market is a market whereby there are many firms competing against each other with the aim of making profits. A competitive market has the following characteristics; first, there are many firms producing one type of good/item. The goods are identical in nature and it is assumed there is no product differentiation. There is also free entry and exit in the competitive market, meaning the firms can freely join or exit the market whenever they feel it is convenient. Since there are many firms producing one homogeneous product, buyers are many as well. The main characteristic of the competitive market is that the firms are price takers. These firms do not set the prices at which they sell their goods. The prices are influenced by the market conditions, if a firm sets price, it may lose its share of the market to its competitors. The firms maximize their profits at the point where their average cost is equal to the prices.
A monopoly is where there is only one firm in the market producing that particular good or service. Monopolies have absolute control over their prices; they set the price at which they sell their products. They maximize profits when their marginal cost is equal to the marginal revenue. This makes the monopoly ineffective because the monopoly produces fewer products than the demand for the products and sells the same goods at a higher price than it should be.
The concept of a monopoly is that there is only one firm, producing less than it should and selling the products at a higher price than the market price. It is therefore an ineffective market because the producer makes supernormal profits while the consumers are exploited. The competitive markets, the profits are at zero, the firm produces goods but the prices are externally determined by the market.
Gwartney, J. D., Stroup, R. L., Sobel, R. S., & MacPherson, D. (2008). Economics: Private and Public Choice (12, illustrated ed.). London: Cengage Learning.
