Externalities in economics are the factors and elements in the economy that indirectly affect the economy. Externalities affect the various aspects of the economy in either positive or negative ways, yet they are not directly linked to the element of the economy. Positive externalities affect the economic point of a country in good habits, while the negative externalities affect the economy in the wrong way. Externalities are not cored affecters of the financial activities or elements of a nation, but they affect the quality and decisions and states of the economic aspects of a country. For example, education may not be the core aspect to determine the commercial character of a country, but the level of education may decide the economic aspect of the country.
The government is the authority that determines the various aspects of the economy through the multiple perspectives in policing and regulations of the economic issue (Welker, 2020). The government determines the rates of interests, the financial aspects through enabling environments, the creation of capital, and the creation of the various bodies that regulate the flow, demand, and supply of money in the economy. Enabling environments such as education promotion and interest rates regulation affects the economic aspects of the country in many ways and thus are the externalities that affect the economy of a nation. The government provides the policies and moral values that the various elements in the economy should follow to enhance and determine the economy of the states.
A monopoly market is a market that has only one [producer or supplier of a particular good in the market. The single producer is also the responsible party in the market determination of the supply and price of the products. In a monopoly market, there exist high barriers to entry of other firms in the market, and the firm enjoys various benefits that create barriers of entry of other firms in the market or the industry. Monopolies enjoy benefits such as the economies of scale and superiority in the technological aspects of the firm that the other firms willing to enter the market are unable to get or have (Kim & Horn, 1999). These cause barriers of entry in the market and thus make the firm to run as a sole firm in the industry and thus controlling the whole aspects of the market, such as the price and supply. The pricing in the monopoly market or economy is determined by the monopoly itself and not the forces of demand and supply.
Natural monopolies are the business that exists as the only ones in the industries because of the high entry costs and barriers to other companies in entry (Chappelow, 2019). Examples of natural monopolies include utility companies like power and water providers companies in various cities or countries. Natural monopolies are established in an environment where competition by others would be useless or costly and would not have viable returns. Inherent copyrights are mostly there in the market as they enjoy various benefits and aspects that other companies may find difficult to enjoy in the market and thus the difficulty in the entrance of the firms in the market (Welker, 2020). The government regulates the natural monopolies to ensure the fair treatment of the consumers and adherence to the required standards of the products and services offered by the firms.
The government usually regulates the natural monopolies as they are there to offer the essential services that other firms cannot be able to offer easily. If the natural monopolies are allowed to run without the regulations by the authority, they will harm the consumers by overcharging the goods and thus earning supernormal profits. Price discrimination is one of the forms of management offered top natural monopolies to ensure that the monopoly does not treat all the sectors of the market in the same way. Price discrimination is whereby the various classes of people in the society are charged different prices for the goods in an economy (Knieps, 2014). The aspect of the product and the level of the people is a determinant of the cost of the product, yet the product is from the same producer in price discrimination.
Chappelow, J (2019). Natural Monopoly. Investopedia. Retrieved from: https://www.investopedia.com/terms/n/natural_monopoly.asp#:~:text=For%20example%2C%20the%20utility%20industry,and%20towns%20across%20the%20country.
Kim, R, & Horn, A. (1999). Regulation policies concerning natural monopolies in developing and transition economies. DESA Discussion Paper No. 8. Retrieved from: https://www.un.org/esa/esa99dp8.pdf.
Knieps, G. (2014). Network Economics: Principles – Strategies – Competition Policy. Springer, a book publisher. New York. Retrieved from: https://books.google.co.ke/books?id=zDZpBQAAQBAJ&pg=PA73&dq=price+differentiation&hl=en&sa=X&ved=2ahUKEwis5tnZpKDqAhXRAmMBHQVuAGgQ6AEwCHoECAgQAg#v=onepage&q=price%20differentiation&f=false.
Welker, J (2020). Natural Monopoly and the need for Government Regulation. Retrieved from: https://econclassroom.com/natural-monopoly-and-the-need-for-government-regulation/.