Effects

Question 1

What is the Effect of
competition on
CONSUMERS?
cbii upa

Answer 1

Competition leads to a fall in price

better quality of goods and services

Innovation and inventions should occur,&raquo_space; increase the choice and variety of
goods and services available to consumers

Increases sovereignty > more products that consumers want at a price they are
prepared to pay» rise in consumers standard of living

unwanted/expensive goods forced out of themarket

Producers may introduce goods (such as pesticides) that are dangerous or harmful and
have negative effects on consumers (either directly or indirectly)

Advertising is often very persuasive. Consumers may be encouraged to buy products
they do not need

Question 2

Effect on
competition on
PRODUCERS?
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Answer 2

-Forces producers to improve their efficiency, including finding ways to reduce their
costs. This is what has driven technological innovation and automisation of
manufacturing
–Being more efficient will increase the productivity of the factors of production
—If enough businesses become efficient,» lead to growth of the economy»>
thus greater demand for goods and services»»greater profits and the more efficient producers, which will then expand output to meet demand

Producers innovate to stay ahead of competitors as new products
to attract more consumer demand.-»This will
attract new investment as investors realise that there are new opportunities for earning
money (profit!)

Those who are slow to adopt to changes in technology or demands of consumers will
either go out of business or be forced out of the market they operate in (if the operate in
more than one)
_»> less workers being needed as firms may need to cut costs. Therefore
could increase UNEMPLOYMENT

Question 3

What is the effect of a price change on price INELASTIC demand?

Answer 3

• price falls sharply from P to P1, with little effect on the quantity (Q to Q1).
• This would be typical of products that are necessities. -The increase in competition means that the sellers are fighting to take each other’s customers

Question 4

What is the effect of a price change on price ELASTIC demand?

Answer 4

• price only falls by a relatively small amount from P to P2, but there is a
• significant effect on the quantity (Q to Q2).
• would be typical for non-essential goods. Here the fall in price is creating new quantity demanded

Question 5

What is the main advantage of competition?

Answer 5

-it has the potential to drive the price down.
-increase in competition causes supply curve to shift right .
-increase in quantity bought and sold from Q to Q1, and a
-fall in price from P to P1.
Remember, the extent of the fall in price will depend on the PED (elastic or inelastic)