Diagram of Monopoly
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A Monopolist maximises profit where MR = MC
Therefore it sets Price = Pm and Quantity = Qm
Firm makes Supernormal profit = (AR- AC) Q
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Due to the expansion of the EU and the process of globalisation, many foreign
workers have been attracted into the UK. Immigration accounted for 46% of net
population growth in 2008
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1. Economies of Scale:
If countries can specialise in certain goods they can benefit from
economies of scale and lower average costs. This is especially true in
industries with high fixed costs or that require high levels of investment.
2.
Reducing Tariff barriers leads to trade creation
Trade creation occurs when consumption switches from
high cost producers to low cost producers
P
S UK
S World
+ Tariff
P1
1
2
3
4
S World
P2
D
Q
Q1
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Q2
Q3
Q4
The removal of tariffs leads to lower prices for consumers ( P1 – P2)
and an increase in consumer surplus (1+2+3+4)
The govt will lose tax revenue Of area 3
Domestic firms will sell less and lose producer surplus of area 1
3. Increased Exports.
If UK firms have a comparative advantage then with lower tariffs they will
be able to export more and create more jobs.
4. Increased Competition.
With more trade, domestic firms will face more competition from abroad,
therefore there will be more incentives to cut costs and increase efficiency. It
may prevent domestic monopolies from charging too high prices.
5. Trade is an engine of growth.
World trade has increased by an average of 7% since the 1945, causing
this to be one of the big contributors to global economic growth.
6. Make use of surplus raw materials
Middle Eastern counties such as Qatar are very rich in reserves of oil but
without trade there would be not much benefit in having so much oil.