National Economics Challenge Practice Test 2026 – The Comprehensive Guide to Mastering Economics!

In a monopoly, the absence of competition allows a single seller to exert significant control over the market, particularly over pricing. Monopolists can set prices above the competitive equilibrium level because they are the sole provider of a good or service. This market power is derived from the lack of competitors and the ability to control supply.

As a result, prices typically increase when a monopoly is in place. The monopolist seeks to maximize profits by reducing output and raising prices, as consumers have no alternative sources for the product. This is fundamentally different from competitive markets, where prices are determined by supply and demand dynamics among multiple producers. In competitive markets, any attempt to raise prices would lead to a loss of customers to competitors.

Overall, the unique characteristics of a monopoly lead to higher prices compared to competitive markets, where prices generally reflect consumer demand more closely.