FACULTY OF COMMERCE
NAME : CHRISTOPHER
SURNAME : MUZOTA
PROGRAM : BSc ECONOMICS
REG NUMBER : B227350A
COURSE : PRINCIPLES OF ECONOMICS 1 (EC101)
LECTURE : MR KONDO
ESSAY QUESTION: ECONOMISTS BELIEVE THAT , THE EXISTANCE OF
MONOPOLY BRINGS MIXED FORTUNES TO SOCIETY;USING
PRACTICAL EXAMPLES , DISCUSS THE VALIDITY OF THIS
STATEMENT.
The existance of monopolies has been a topic of debate among economists for
centuries. Adam Smith the father of modern economics , believed that monopolies
were harmful because they restricted competition and limited consumer choice. John
Meynard Keynes, a 20th century economist believe that monopolies could harm
society by stifling innovation and reducing overall productivity. In this assignment I
will be examining the existance of monopolies and their impact on society, with a
focus on the case of Zimbabwe.I will begin by defining a monopoly and then explore
the advantages and disadvantages of monopolies , using examples from the
Zimbabwean context.
According to the Merrian-Webster disctionary, a monopoly is when a firm takes
complete control of the entire supply of goods and services in a certain area or a
market.Some examples of monopolies include Zimbabwe Electricity Supply
Authority (ZESA), National Railway of Zimbabwe (NRZ) and Zimbabwe
Broadcasting Cooperation (ZBC).
The diagram above dipicts that profit maximisation, MC = MR, and output is Q and
price P. Given that price (AR) is above ATC at Q, supernormal profits are
possible (area PABC).
Let us examine the instance of ZESA. In Zimbabwe, ZESA is the only company that
can deliver power. Due to ZESA's monopoly, numerous localities in Zimbabwe have
profited from its investments in infrastructure and grid expansion. Furthermore, the
corporation has maintained comparatively low costs, contributing to the affordability
of electricity for consumers.
On the disadvantage, The absence of competition and innovation in the electric sector
is a drawback of ZESA's monopoly.Poor services and a high degree of inefficiency
are the result of this. Furthermore, ZESA's lack of competition has made it docile and
unresponsive to change.
Monopolies are often said to be allocatively inefficient because they do not produce at
the optimal level where marginal cost equals marginal revenue (MC=MR). Instead
they tend to overproduce their goods and services, leading to an iffecient allocation of
resources. In addition , monopolies may have barriers to enty that prevent new firms
from entering the market, which further reduces competion and leads to inefficiency.
Assuming that NRZ sets the price of PM, this is allocatively inefficient as the price of
Qm is higher than MC at this point in the output.The point when MC cuts the demand
curve, making Price = MC, is where allocation efficiency would have occurred. The
region tinted in blue, which represents dead weight loss, illustrates the extent of
NRZ's allocative inefficiency in Zimbabwe's economy.Because it does not produce at
the optimal level where marginal cost equals marginal revenue, the NRZ is referred to
as allocatively inefficient.The inability of the corporation to distribute resources
effectively can be linked to several issues such as outdated infrastructure, insufficient
investment, and inadequate management. Because of this, the business is unable to
operate efficiently, which results in an inefficient allocation of resources.
Furthermore, monopolies can also promote innovation. With exclusive control over a
market, a monopoly has the resources and financial capacity to invest in research and
development. This enables them to create new products or improve existing ones,
driving technological advancements and benefiting consumers. A notable example in
Zimbabwe is the tobacco industry. The Zimbabwe Tobacco Association, which
represents the majority of tobacco growers and buyers, has a near-monopoly on the
export of tobacco. Through significant investments in research and development, they
have managed to improve the quality of Zimbabwean tobacco, making it highly
sought after in international markets. This innovation has resulted in increased
revenues for tobacco farmers and has boosted the country's economy.
However, the existence of monopolies in Zimbabwe has also brought numerous
negative consequences. One major drawback is the lack of competition, which can
lead to reduced consumer choice and higher prices. Without competitors to keep
prices in check, monopolistic firms have the ability to charge higher prices and earn
excessive profits. This is evident in the fuel industry, where the National Oil
Company of Zimbabwe (NOCZIM), a state-owned monopoly, controls the
importation and distribution of petroleum products. The absence of competition has
resulted in inflated fuel prices, burdening consumers and businesses alike.
Another negative impact of monopolies is hinder market entry for to the dominant
position of a monopoly, barriers emergence of new ideas and competition in various
sectors. In Zimbabwe's banking sector, for example, the Reserve Bank of Zimbabwe's
regulatory policies have created a virtual monopoly for large state-owned banks,
making it difficult for smaller private banks to enter the market. This lack of
competition has led to limited innovation and restricted access to financial services for
the population.
In conclusion, the existence of monopolies in Zimbabwe brings mixed fortunes to
society. While monopolies can sometimes lead to increased efficiency and innovation,
they often result in reduced consumer choice, higher prices, and limited market entry.
The electric and tobacco industries illustrate the positive aspects of monopolies, with
their ability to provide affordable services and drive other hand, the fuel and banking
sectors demonstrate the negative consequences, such as inflated prices and restricted
competition. Therefore, it is crucial a balance between promoting competition and
allowing for monopolies to encourage innovation, ensuring the best outcomes for
Zimbabwean society.
REFERENCES:
1. - Makumbe, J., & Mupfumbati, A. (2019). Zimbabwe's Power Sector Reforms and
Independent Power Producers. Energy Policy, 123, 617-625. doi:
10.1016/j.enpol.2019.07.04
2.- Chifamba, S. (2011). Zimbabwe Energy Supply Industry Review. Energy
Research Centre, University of Cape Town.
3.van de Klundert, T., & Peters, P. (1988, May). Price Inertia in a Macroeconomic
Model of Monopolistic Competition. Economica, 55(218), 203.
https://doi.org/10.2307/2554468
4 Harris, G. (1995, April). Allocative inefficiency, X-inefficiency, Bureaucracy and
Corruption in Developing Countries. Journal of Interdisciplinary Economics, 6(1),
55–79. https://doi.org/10.1177/02601079x9500600103
5. The monopoly diagrams
https://www.economicshelp.org/microessays/markets/monopoly-diagram/
