Chapter 18/19/20/21

Question 1

What is competition?

Answer 1

Rivalry existing between firms to sell their product to the same customers.

Question 2

What are the features of competitive markets?

Answer 2

-Low barriers to entry
-Many buyers/sellers
-Little control over price
-Free flow of info
-Products are close substitutes

Question 3

How does competition affect the firm?

Answer 3

• Don’t want competition because then they can’t:
  Be less innovative
  Provide low quality and still get sales
  Charge high prices

Question 4

What is product differenciation?

Answer 4

When firms try to distinguish their product from their rivals

Question 5

What effect does competition have on the consumer?

Answer 5

Benefits consumer:
- Lower prices, high quality
- More choice, better alternatives

Disadvs:
- Market uncertainty
- Lack of innovation

Question 6

What are the advs/disadvs of competition to the economy?

Answer 6

Advs:
- Resources allocated more effectively
- Better standard of living

Disadv:
-Wasted resources, immobile FoP

Question 7

How can we measure the size of a firm?

Answer 7

Turnover rate, No. of employees, balance sheet total (amount invested).

Question 8

What are advs of small firms?

Answer 8

Advs:
Can pay minimum wage
Better communication
Owners far more accessible
Flexibility (react quickly as owners directly involved)

Question 9

What are the disadvs of small firms?

Answer 9

Higher costs
Lack of finance
Difficult to attract highly skilled staff

Question 10

What are advs of large firms?

Answer 10

Economies of scale
Large scale contracts
Market domination= brand loyalty

Question 11

What are disadvs of large firms?

Answer 11

Diseconomies of scale
Too bureaucratic
Poor motivation
Less control

Question 12

What factors influence the growth of a business?

Answer 12

1: Government regulation, want to inc standard of living
2: Economies of scale
3: Access to finance
4: Take over competitors

Question 13

Why do some businesses stay small?

Answer 13

Diseconomies of scale
Entrepreneurs’ aims
Lack of finance
Size/nature of the market

Question 14

What is a monopoly?

Answer 14

When one business dominates the market, has 25% market share.

Question 15

What are the features of a monopoly?

Answer 15

1- One firm dominates
2- Only few firms sell this product
3- Controls prices
4- High barriers to entry

Question 16

What are the advs of monopolies?

Answer 16

Efficiency: No duplicates
Economies of scale
Innovation, lots of profit

Question 17

What are the disadvs of monopolies?

Answer 17

Higher prices
Lack of innovation (less incentives)
Inefficiency: No need to keep costs down
Restricted choice

Question 18

What is an oligopoly?

Answer 18

Where a few large businesses dominate the market.

Question 19

What are the features of an oligopoly?

Answer 19

1: Few large firms dominating
2: Product differentiation
3: Barriers to entry
4: Non-price competition
5: Pricing competitions, price wars
6:Collusion

Question 20

What are the advs of oligopolies?

Answer 20

Choice, quality, Economies of scale (cost savings), innovation and price wars

Question 21

What are the disadvantages of oligopolies?

Answer 21

Collusion= price fixing + setting up geographically (restrict choice)