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Economics Edexcel iGCSE > Competition > Flashcards

Competition Flashcards

1
Q

What is a monopoly?

A

A market with one dominant seller (more than 25% of market)

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2
Q

What are 3 features of a monopoly?

A
  • High barriers to entry
  • Unique product
  • ‘Price Makers’ - control over price
  • Economies of Scale
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3
Q

What are barriers to entry?

A

Obstacles that can stop new competitors entering a market

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4
Q

Name 5 barriers to entry?

A
  • Cost barriers
  • Legal barriers
  • Economies of scale
  • Marketing barriers
  • Predatory pricing
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5
Q

What is a cost barrier?

A

A large amount of investment would be required by a new competitor to start up

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6
Q

What is a legal barrier?

A

Competition can be excluded by patents (licence that prevents firms copying the product)

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7
Q

What is economies of scale (barrier to entry)?

A

Established firms benefit from economies of scale (lower average costs) due to their size

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8
Q

What is a marketing barrier?

A

Big brand names (e.g. Nike) are hard to compete with

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9
Q

What is predatory pricing?

A

Big firms may lower prices to make it hard for new firms to compete

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10
Q

What are 4 advantages of a monopoly?

A
  1. More Research & Development
  2. Natural Monopolies
  3. Internationally Competitive
  4. Lower Costs
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11
Q

What are 4 disadvantages of monopolies?

A
  1. Less Innovation
  2. Higher Prices
  3. Inefficiency
  4. Less Choice
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12
Q

What is a natural monopoly?

A

Only one firm that serves the entire market at a low cost, regulated by the government

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13
Q

What is an oligopoly?

A

A market dominated by a few large firms

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14
Q

What are 4 features of a oligopoly?

A
  • Economies of scale
  • Barriers to entry
  • Interdependence
  • Non-price competition
  • Collusion
  • Price rigidity
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15
Q

What is non-price competition?

A

To avoid price wars, firms compete by investing in advertising and promotion

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16
Q

What is a price war?

A

When one competitor lowers prices to gain market share, so all competitors follow so they don’t lose sales

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17
Q

What is collusion?

A

Informal agreement between firms to restrict competition

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18
Q

What is a cartel?

A

Group of firms join together formally to fix prices or output in market

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19
Q

What is price fixing?

A

Where all firms agree to charge a certain (higher) price

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20
Q

How can we measure the size of a firm (name 4 and define each)?

A

Turnover - Amount of money a business makes
Number of Employees - Amount people who work for a business
Capital Employed - How much money is invested into the business
Size of Market Share - Percentage/amount of customers a
business sells their products to

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20
Q

How many people are employed in a small firm?

A

0-49

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21
Q

How many people are employed in a medium-sized firm?

A

50-249

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22
Q

How many people are employed in a large firm?

A

250+

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23
Q

Name and explain 3 advantages of a small firm

A

Better customer service - More face to face interaction with
customers and employees
Lower labour costs - Most workers are not apart of trade unions
Flexibility - Adapt more easily to change
More innovate - Lack of resources/finance means they have to be innovate
Better communication - Fewer employees, decisions can be made quicker
More motivated staff - More interaction between
employer and employee

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25
Q

Name and explain 3 disadvantages of a small firm

A

No economies of scale - higher costs
High risk (vulnerability) - More difficult to survive, compete against larger firms
Lack of finance - Struggle to raise finance because lenders consider small firms too risky
Recruitment Problems - Lack resources, cannot afford wages or training that high-quality employees require/attracted to

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25
Q

Name and explain 3 disadvantages of a large firm

A

Too bureaucratic - Are overwhelmed by their administration system (e.g. decision-making slow because many different people have to be consulted before a decision can be made)
Difficult to co-ordination and control - Running a firm around the world can be demanding (e.g. many employees = more supervision, raising the costs)
Poor motivation - Too large firm that effort made by single employee seems insignificant & personal contact may be lacking

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26
Q

Name and explain 3 advantages of a large firm

A

Economies of scale - Their average costs will be lower as their output is huge (e.g. can get cheaper supplies of materials as they buy in bulk)
Market domination - Have higher profile in the public eye (e.g. can charge high prices = higher profits)
Large scale contracts - Can be won by large firms because small firms do not have the resources to carry out the work

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27
Q

Why do firms want to grow? Name 3 reasons

A 
Economies of scale
Increase profits 
To survive 
Reduce risk
Increase share market
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28
Q

What are the two methods of growth?

A

Organic growth

External growth

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29
Q

What is organic growth?

A
  • Growing internally
  • Business increases its output and sells more (may open more stores)
  • Slow method of growth
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30
Q

What is external growth?

A
  • Joining with another company to grow
  • Faster way of achieving growth
  • E.g. Merger, takeover, acquisition
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31
Q

What is the definition and example of a merger?

A

It is where two firms agree to join together as one e.g. Disney and Pixar

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32
Q

What is the definition and example of a takeover (acquisition)?

A

It is when one company buys the control of another firm e.g. Facebook took over Whatsapp

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33
Q

What is the difference between a friendly takeover and a hostile takeover?

A

Friendly takeover - When a firm welcomes a takeover bid

Hostile takeover - When one firm takes another firm against its will

34
Q

Name 4 types of integration

A

Horizontal integration
Vertical integration
Lateral Integration
Conglomerate/diversifying mergers

35
Q

What is horizontal integration?

A

When 2 firms in exactly same industry and production join together

36
Q

What is vertical integration? Explain forward & backward vertical integration as well.

A

Involves a firm joining with one that operates in a different stage of production
Forward vertical integration - Next production stage
Backward vertical integration - Previous production stage

37
Q

What is lateral integration?

A

When firms joining together that produce related products but not in competition with each other

38
Q

What are conglomerate/diversifying mergers?

A

When firms operating in completely different industries join together

39
Q

Name and explain 3 obstacles/limitations a business might face when trying to grow

A

Limited market - Some markets are small = large firms cannot exist
Lack of finance - If owners do not have enough finance, they will not have the ability to grow
Entrepreneurs goals - Sometimes a firm may not want to grow because owner is content with a small firm
High level of competition - Firms may find it hard to grow because of high levels of competition
Diseconomies of scale - If a firm’s average costs start to increase they may find it hard to grow

40
Q

What is competition?

A

Rivalry between firms trying to sell goods in a market

41
Q

Name 3 types of competition

A
  1. Competitive Market
  2. Oligopoly
  3. Monopoly
42
Q

What are the features of a competitive market? (name 4)

A
  1. Large numbers of buyers and sellers
  2. Low barriers to entry
  3. Many close substitutes
  4. ‘Price Takers’
  5. Low market share
  6. Free flow of information
43
Q

To survive in a competitive market, what must a firm do? (name 3 things)

A
  1. Minimise their costs by operating efficiently
  2. Provide good quality products
  3. Innovate by constantly reviewing and improving products
44
Q

What is an advantage for firms being in a competitive market?

A

Will be efficient and have greater ability to compete in overseas markets

45
Q

What is a disadvantage for firms being in a competitive market?

A

Profit is limited - total profit in the industry has to be shared between many firms

46
Q

Name 3 advantages of competitive markets for consumers

A
  1. More Choice
  2. Lower Prices
  3. Better Quality
47
Q

Explain why there is more choice in a competitive market

A

The high number of firms are pressed to innovate and make their products different

48
Q

Explain why there are lower prices in a competitive market

A

Goods are close substitutes, therefore consumers can easily switch to a cheaper rival

49
Q

Explain why there is better quality in a competitive market

A

Poor quality goods will not be bought by consumers - they will switch to rival goods

50
Q

Name 2 disadvantages of competitive markets for consumers

A
  1. Uncertainty

2. Less Innovation

51
Q

Explain why there is uncertainty in a competitive market

A

Frequent entry and exit of firms may disrupt the market and cause confusion

52
Q

Explain why there is less innovation in a competitive market

A

Lower profit levels leave fewer resources available for Research and Development and innovation

53
Q

Name 2 advantages of competitive markets for the economy

A
  1. Resources are allocated more effectively

2. More innovation

54
Q

Explain why resources would be allocated more effectively in a competitive market

A

Because firms have to operate efficiently to survive (are under pressure to minimise costs)

55
Q

Explain why there would be more innovation in a competitive market

A

Due to competitive pressure on firms

56
Q

What is a disadvantage of competitive markets for the economy?

A

Resources might be wasted because some production factors are immobile

57
Q

Explain how some production factors are immobile in competitive markets and what this can lead to?

A

When firms close down it takes time for resources to transfer to other uses = can be wasteful

58
Q

What is a pure monopoly?

A

A market controlled by one seller with a good or service that has no close substitutes

59
Q

Explain why monopolies can research and develop more and why is this good

A

With their higher profit levels, monopolies have the resources to invest in R & D and generate new products for consumers

60
Q

What is advantage of natural monopolies?

A

In some markets (e.g. air travel and water distribution), it’s cost-effective to have one supplier → wasteful duplication is avoided

61
Q

What is the advantage of monopolies being internationally competitive?

A

Successful monopolies can compete more easily overseas = create jobs and exports in the producing country

62
Q

How can monopolies lower their costs and why is this beneficial?

A

Large monopolies can exploit economies of scale = reduces costs and might mean lower prices for consumers

63
Q

Why is there less incentive to innovate in monopolies?

A

There’s no competitive pressure

64
Q

Why is there higher prices in monopolies?

A

Without competition consumers are forced to pay higher prices

65
Q

Why is there inefficiency in monopolies?

A

There’s no pressure to minimise costs

66
Q

Why is there less choice in monopolies?

A

No competition

67
Q

What is meant by interdependence?

A

The actions of one firm will have an impact on the others in the market

68
Q

What is price rigidity?

A

Prices stay the same for lengthy periods because firms fear price wars

69
Q

Why are there barriers to entry in oligopolies?

A

Set-up costs may be high and the dominant firms discourage entry by investing heavily in marketing

70
Q

What are 3 advantages of oligopolies?

A
  1. Choice
  2. Price Stability
  3. Economies of Scale
71
Q

Why is there a lot choice in oligopolies? (2 reasons)

A
  1. Non-price competition can result in more choice for consumers, as firms continually launch new brands
  2. Choice is also provided by small produces that supply niche markets
72
Q

What is the benefit of price stability?

A

Stable prices will create some certainty in the market

73
Q

How may consumers benefit from price wars?

A

Prices may be cut aggressively

74
Q

What is the benefit of economies of scale (for consumers)?

A

Costs will be lower which might mean lower prices for consumers

75
Q

What are 3 disadvantages of oligopolies?

A
  1. Cartel
  2. Collusion
  3. Dominant firms spend huge amounts on advertising and promotion
76
Q

Why is a cartel bad?

A

If successful, they act as monopoly in the market

77
Q

Why is collusion bad?

A

If firms fix prices, consumers will pay more + if the market is shared out there’ll be less choice

78
Q

Dominant firms spend huge amounts on advertising and promotion, why might this be a bad thing (for consumers)?

A

Many consumers might prefer to have lower prices with less spent on advertising

79
Q

How can growth help a firm to survive?

A

Large firms can deal better with competition and poor trading conditions because they have more resources

80
Q

How can growth help a firm reduce risk?

A

Branching out into new markets and new products means that if one product fails, success in others can keep the firm going

81
Q

What is the benefit of a larger market share?

A

With a larger market share, firms can charge more, enjoy a higher profile and establish its brand more effectively

82
Q

How can growth help a firm to increase profit?

A

Large firms generate more revenue and profit because they have big market shares and more products in more markets

83
Q

What is the benefit of economies of scale? (growth)

A

Lower average costs + improves efficiency and profitability

Economics Edexcel iGCSE (8 decks)

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