Question

Mike enjoys a monopoly in shoe manufacturing in a particular region and falls into a situation where the demand for goods and services falls.

What advice would you give him as his financial advisor?

• A. To manufacture more shoes
• B. To manufacture less shoes
• C. To quit the business
• D. To set up more shops

Answer 1

The correct option is B To manufacture less shoes

The government intervenes when there is excess supply of money in an economy. When a commodity is in increased supply, there will be less demand. So, by limiting the supply of the shoes in the region, Mike increases the demand and therefore the price of the commodities he manufactures.

Also, an increased circulation will enable people to spend more, and this too would increase the demand for the product.