Micro Economics - Assignment Example

Assignment [Due Oligopoly is a market structure which involves a few firms producing a product or a service. When such a situation occurs, there is a chance that the few firms might collude to set a price or output level in order to maximize their profits. This means that the price will be higher than the market clearing price. Such firms operate for their own self-interest and collusively agree to sell a product at a fixed price or control product supply in order to maintain a price which can bring maximum profits (Schiller, Hill, & Wall, 2013).

Such a situation requires regulation by the government because it throws off the demand and supply balance. It is exploitative in nature and it takes unfair advantage of the fact that there are a few firms operating in the market and consumers must turn to them to buy their service (Schiller, Hill, & Wall, 2013). In order to protect the consumers from such exploitative practices and not let the companies take advantage of the consumers’ lack of options, government regulators should intervene and oversee that no collusion takes place.

Collusion remains to be a problem in today’s economy as well. Recently, a collusive agreement between top Silicon Valley executives took place whereby they agreed to not hire away valuable employees from each other’s companies (Fung, 2014). Although this collusion was not in the form of controlling prices or output levels, it still shows the exploitative nature of collusion and the harm is does to the people.I agree with statement 1 since it adequately describes the need for free and open markets where the supply and demand equilibrium is not disturbed.

Collusion upsets this equilibrium and harms the consumers with artificially high product prices and the companies themselves with its inefficient resource allocation. Statement 2 is also similar in nature and describes how collusion can upset the way market forces are working. In an Oligopoly, collusion is easier and consumers are at a disadvantage. To ensure that the market remains corruption free and exploitation does not take place, it is necessary to let the market forces work to achieve equilibrium rather than setting up an artificial price for the selfish interests of the companies.

BibliographyFung, B. (2014, April 23). What the Apple wage collusion case says about Silicon Valley’s labor economy. Retrieved from Washington Post: http://www.washingtonpost.com/blogs/the-switch/wp/2014/04/23/what-the-apple-wage-collusion-case-says-about-silicon-valleys-labor-economy/Schiller, B., Hill, C., & Wall, S. (2013). The Micro Economy Today. McGraw Hill/Irwin.