ABSTRACT
This chapter analyses the consequences of product market imperfection, namely the presence of monopoly. It concerns the impact of monopoly on some propositions in the pure theory of trade to discuss the autarky equilibrium initially. The chapter discusses the ranking of free trade vis--vis no trade and the implications of monopoly for the Lerner symmetry theorem. It examines with a brief recapitulation of the perfectly competitive case to demonstrate the problems associated with the existence of an equilibrium with monopoly in the two-sector model. The assumption of perfect product markets is relaxed and instead it is assumed that either one or both industries are characterised by monopoly. Monopoly represents the polar opposite of the assumption of perfect competition. There are several market forms that lie between perfect competition and monopoly, for instance, duopoly and oligopoly. The real world is characterised probably more by these intermediate market forms than by the extreme cases of perfect competition and monopoly.
