2.5 Competition Flashcards
How many firms are in an oligopoly?
A few
What is the size of firms in competitive markets?
Normally relatively small
Define competition
Where different firms are trying to sell a similar product to a consumer
What is non-price competition?
Any way of competing other than price, such as:
- Marketing/advertising
- Offering a better quality product
- Offering a better consumer experience
Why do producers compete?
- To enter a new market
- To survive in a market
- To make a profit (to survive and grow)
What types of competition are there?
- Price competition
- Non-price competition
What are the positive effects of competition on producers?
Increase efficiency by:
- Cutting costs to maintain profits
- Improving productivity
- Innovating to keep supplying consumers with new products
Define monopoly
A sole producer or seller of a good or service
What are the positive effects of competition on consumers?
- Cheaper prices, consumers can buy more, leading to a rise in living standards
- Improved quality of goods and services
- Innovation gives consumers more choice
How efficient are firms in a competitive market?
Competitive markets normally lead to economic efficiency
What is price competition?
Cutting prices
- Leading to more consumers
- Those who cannot cut price may go out of business
- Selling at a price less than the cost of supply may lead to disaster
- Price competition is easier for large firms with many products to sell
How efficient are firms in an oligopoly?
Seen as not being economically efficient
What is the size of firms in a oligopoly?
- Can be very large
- Some smaller firms
How many firms are in a competitive market?
Many
Define oligopoly
Where a small number of firms control the majority of the market
How efficient are firms in a monopoly?
Monopolies are not seen as being efficient, but by achieving large economies of scale they can be efficient
What are the negative effects of competition on producers?
- Lose consumers, possibly go out of business
- May have to replace workers with technology (costs money, workers are often consumers)
What is the size of a firm in a monopoly?
Usually very large
What are the negative effects of competition on consumers?
- Marketing may persuade consumers to buy what they do not want
- Quality may decrease if consumers ‘cut corners’
- Innovations may be harmful e.g. pesticides on food crops
How many firms are in a monopoly?
One
