Competition Flashcards
Define the term ‘competition’.
The rivalry that exists between businesses when trying to sell goods and services to the same group of consumers
What are the 5 features of a competitive market?
Large number of buyers and sellers Products sold are close substitutes Low barriers to entry No firm has control over prices Free flow of information
What are the 4 advantages of competition for consumers?
Lower prices
Better quality
More innovation
More choice
What are the 2 disadvantages of competition for consumers?
Too many choices
Uncertainty
What are the 4 advantages of competition for firms?
Workers may be motivated Firms forced to: Innovate/reduce wastage of resources Become productively efficient (COP↓) Engage in product differentiation
What is the one disadvantage of competition for firms?
Potential loss of revenue, profit and market share
What are the 3 advantages of competition for the government?
Innovation leads to more international competitiveness
Lower prices can lead to:
Higher demand for exports
Greater purchasing power for consumers (SOL↑)
What are the 2 disadvantages of competition for the government?
Decreased quality of goods can affect consumer welfare
Wastage of resources if many firms produce the same thing
Which 3 factors which can be used to measure the size of a company and why?
Turnover (sales revenue) - determines market share
Number of employees - larger firms need more workers
Capital employed - how much money invested in the firm
What are the 5 advantages of being a small firm?
Flexibility - quick response to changes in the market
Personal service - able to know their customers very well
Lower wages - employees less likely to be part of unions, may not negotiate higher wages
Better communication - few employees = easier to pass messages to staff
Innovation - competition forces them to innovate to attract customers
What are the 4 disadvantages of being a small firm?
Higher costs - less likely to be able to gain economies of scale
Lack of finance - More risky as banks less likely to lend
Difficult to get right staff - pay is lower and not much training offered, more skilled workers will look elsewhere
Subject to more risk - if one item/brand fails
What are the 3 advantages of being a large firm?
Economies of scale
Market domination - better known, higher prices can be charged
Having the resources to win large contracts
What are the 3 disadvantages of being a large firm?
Too bureaucratic - lots of administration and discussion needed for changes
Co-ordination and control - harder to control several employees
Poor motivation - staff may feel their impact on the firm is limited
Give 4 reasons why small firms might survive.
Personalised customer service
Unique selling point/niche
Local monopoly - convenience
Limited demand
Give 4 reasons why firms may not be able to grow.
Difficult to compete with EoS of larger firms
‘External shocks’ eg. COVID-19
Limited demand for particular goods and services
Limited access to finance
What are firms’ 6 motives for growth?
Survival Economies of scale Increased profits Increased market share/control of market Reduced risk Synergy
