Which of the following best describes how the government enables government monopolies to exist?

• A. By encouraging competition among multiple private firms in the same market
• B. By imposing high taxes on all firms in the industry
• C. By removing all regulations and allowing free entry into the market
• D. By granting exclusive rights to a single firm to provide a particular good or service

Answer: (D)

Verified step by step guidance

1. Understand the concept of a government monopoly: it occurs when the government allows only one firm to provide a particular good or service, preventing other firms from entering the market.
2. Recognize that government monopolies are typically created by granting exclusive rights or legal privileges to a single firm, which can be done through legislation or regulation.
3. Analyze why other options do not describe how government monopolies exist: encouraging competition or removing regulations would lead to multiple firms, and imposing high taxes does not create exclusivity.
4. Focus on the key mechanism: the government grants exclusive rights, which legally restricts competition and enables the monopoly to operate without rivals.
5. Summarize that the best description of how government monopolies exist is through the government's granting of exclusive rights to a single firm to provide a specific good or service.