Questions - Assignment Example

work no. Question In a monopolistic competition market, in is true that the supply is usually less than the demand and therefore there is a lot of effort to ensure that the consumers are cushioned against the shortcomings of the market structure by encouraging more firms to start investing in the sector. Unfortunately there arte sectors of the economy that are very sensitive to be let in the hands of the private sector. For example defense. Though it is a multi billion dollar industry, no country whatsoever would contract a private company or have two competing companies in a bid to defend its boundaries.

This is just an example of one factor that can lead to an economy having monopolies. In addition, copyrights have been established to protect the intellectual property of the source. Although to some extent it contributes to monopoly, there are certain conditions which have to be met and the technology is eventually transferred over time. Question 2 Gross capital formation is used as a measure of investment in a country but the two terms are quite different. Capital formation excludes some factors such as financial aspects and concentrates more on additions on property.

It is used more to describe the reinvestment of profits into the economy especially in Capital Assets. On the other hand investment is a general term that covers the entire set of inputs which include securities, physical property and financial property. The difference between capital formation and investment will be greater in developing countries than it will be in developed countries. Developing countries may get a lot of investment from foreign countries but create little Capital formation due to the limited returns from business in those countries.