Chapter 18/19/20/21 Flashcards
Competitive markets/ A+D of small+large firms/ Monopoly/Oligopoly
What is competition?
Rivalry existing between firms to sell their product to the same customers.
What are the features of competitive markets?
-Low barriers to entry
-Many buyers/sellers
-Little control over price
-Free flow of info
-Products are close substitutes
How does competition affect the firm?
- Don’t want competition because then they can’t:
Be less innovative
Provide low quality and still get sales
Charge high prices
What is product differenciation?
When firms try to distinguish their product from their rivals
What effect does competition have on the consumer?
Benefits consumer:
- Lower prices, high quality
- More choice, better alternatives
Disadvs:
- Market uncertainty
- Lack of innovation
What are the advs/disadvs of competition to the economy?
Advs:
- Resources allocated more effectively
- Better standard of living
Disadv:
-Wasted resources, immobile FoP
How can we measure the size of a firm?
Turnover rate, No. of employees, balance sheet total (amount invested).
What are advs of small firms?
Advs:
Can pay minimum wage
Better communication
Owners far more accessible
Flexibility (react quickly as owners directly involved)
What are the disadvs of small firms?
Higher costs
Lack of finance
Difficult to attract highly skilled staff
What are advs of large firms?
Economies of scale
Large scale contracts
Market domination= brand loyalty
What are disadvs of large firms?
Diseconomies of scale
Too bureaucratic
Poor motivation
Less control
What factors influence the growth of a business?
1: Government regulation, want to inc standard of living
2: Economies of scale
3: Access to finance
4: Take over competitors
Why do some businesses stay small?
Diseconomies of scale
Entrepreneurs’ aims
Lack of finance
Size/nature of the market
What is a monopoly?
When one business dominates the market, has 25% market share.
What are the features of a monopoly?
1- One firm dominates
2- Only few firms sell this product
3- Controls prices
4- High barriers to entry
What are the advs of monopolies?
Efficiency: No duplicates
Economies of scale,
Innovation, lots of profit
What are the disadvs of monopolies?
Higher prices
Lack of innovation (less incentives)
Inefficiency: No need to keep costs down
Restricted choice
What is an oligopoly?
Where a few large businesses dominate the market.
What are the features of an oligopoly?
1: Few large firms dominating
2: Product differentiation
3: Barriers to entry
4: Non-price competition
5: Pricing competitions, price wars
6:Collusion
What are the advs of oligopolies?
Choice, quality, Economies of scale (cost savings), innovation and price wars
What are the disadvantages of oligopolies?
Collusion= price fixing + setting up geographically (restrict choice)
