Lecture 07 # Competition, Market Effects & Govt Measures

Question 1

What is competition?

Answer 1

Definition: Competition refers to the rivalry among businesses or organizations to attract customers, gain market share, and achieve sustainable profitability.

Question 2

Importance of competition?

Answer 2

It drives innovation, improves products and services, and can lead to more efficient production and distribution methods.

Question 3

Types of competition?

Answer 3

Types of Competition:
1. Perfect Competition
2. Monopolistic Competition
3. Oligopoly
4. Monopoly

Question 4

Define perfect competition

Answer 4

1. Perfect Competition: Many small firms sell identical products. No single firm can influence the market price.

Question 5

Define Monopolistic competition

Answer 5

2. Monopolistic Competition: Many firms sell products that are similar but not identical. Each firm has some control over its price.

Question 6

Define Oligopoly competition

Answer 6

3. Oligopoly: A few large firms dominate the market. They may collude to set prices or output levels.

Question 7

Define Monopoly competition

Answer 7

4. Monopoly: A single firm controls the entire market. It sets the price and output levels.

Question 8

What do you mean by market effects?

Answer 8

Market effects refer to the impact of various factors on the supply, demand, prices, and overall functioning of a market.

Question 9

What are government measures?

Answer 9

Government measures refer to the actions taken by the government to regulate, control, or support the economy and market activities.

Question 10

Types of Govt Measures?

Answer 10

Types of Govt Measures:
1. Regulations
2. Subsidies
3. Taxes
4. Price controls
5. Public goods provision
6. Monetary policy
7. Fiscal policy

Question 11

Define business integration.

Answer 11

Business integration refers to the process by which two or more businesses combine to form a larger business entity.

Question 12

What is Ansoff Growth Matrix?

Answer 12

The Ansoff Growth Matrix, developed by Professor Igor Ansoff, is a strategic planning tool that outlines four growth strategies for businesses. It helps companies decide their product and market growth strategies.

Question 13

Ansoff Growth Matrix include how many options, name them?

Answer 13

The Ansoff Growth Matrix includes the following growth options:
1. Market Penetration
2. Market Development
3. Product Development
4. Diversification

Question 14

What are measures of market competition and concentration?

Answer 14

Measures of Market Competition & Concentration are asfollows,
1. Market concentration ratio.
2. Herfindahl index.
3. Lorenz curve.
4. Gini coefficient.

Question 15

Define Market Concentration Ratio with example.

Answer 15

1.Market Concentration Ratio: Measures dominance; higher ratio indicates less competition, signaling few firms’ dominance.
For Example: If top 3 firms control 80%, indicating dominance and less competition.

Question 15

Define Herfindahl Index with example.

Answer 15

2.Herfindahl Index: Calculates concentration; higher values signal potential market power of large firms.
For Example: HI of 0.4 suggests concentration and potential market power.

Question 16

Define Lorenz Curve with example.

Answer 16

3.Lorenz Curve: Graphical representation showing market share distribution; emphasizes inequalities in competition.
For Example: A curve bending sharply, e.g., top 20% firms hold 80% market share.

Question 17

What are some of the major effects of monopoly on the market?

Answer 17

Effects of Monopoly
1. Higher Prices
2. Reduced Output
3. Lower Consumer Surplus
4. Resource Allocative Inefficiency
5. Productive Inefficiency
6. Lack of Innovation
7. Barriers to Entry is strong

Question 17

Define Gini Coefficient with example.

Answer 17

4.Gini Coefficient: Numerical measure from Lorenz Curve; higher values indicate greater market share inequality.
For Example: Gini of 0.7 signifies substantial inequality in market share.

Question 18

What is competition policy?

Answer 18

Competition policy refers to a set of laws, regulations, and government actions designed to promote competition and prevent anti-competitive practices in the marketplace.

Question 19

What are some of the major effects of Collusive Practices (Oligopoly) on the market?

Answer 19

Effects of Collusive Practices (Oligopoly)
1. Higher Prices
2. Reduced Output
3. Lower Consumer Surplus
4. Resource Allocative Inefficiency
5. Reduced Innovation
6. Market Rigidity
7. Barriers to Entry is strong
8. Legal and Ethical Issues

Question 20

What is the main goal of competition policy?

Answer 20

The main goal of competition policy is to enhance consumer welfare by ensuring that markets operate efficiently, businesses compete fairly, and innovation is encouraged.

Question 21

What are benefits of Competition Policy?

Answer 21

Benefits of Competition Policy
1. Lower Prices
2. Better Quality
3. More Choice
4. Innovation
5. Economic Growth

Question 21

Define externalitites.

Answer 21

EXTERNALITIES: It refers to the side effects of economic activities on third parties, either positive or negative, not reflected in market prices.

Question 22

What are objectives of Competition Policy?

Answer 22

Objectives of Competition Policy
1. Promote Market Competition
2. Prevent Monopolies and Oligopolies
3. Prohibit Anti-Competitive Practices
4. Encourage Innovation and Efficiency
5. Protect Consumer Interests

Question 23

Types of Externalities?

Answer 23

Types of Externalities:
1. Negative
2. Positive

Question 24

Define Negative Externality.

Answer 24

1. Negative Externality:
   Definition: Negative externalities occur when an economic activity imposes costs on third parties not directly involved in the activity.

Question 25

Define Positive Externality.

Answer 25

Positive Externality:
Definition: Positive externalities occur when an economic activity generates benefits for third parties not directly involved in the activity.

Question 26

Explain negative externalities Intervention?

Answer 26

Negative Externalities Intervention:
Graph: Tax imposed to align social cost with supply, reducing negative externality.
Outcome: Price increases, quantity decreases.

Question 26

What are government measures to deal with externalities?

Answer 26

GOVT MEASURE TODEAL WITH EXTERNALITIES
1. Negative Externalities Intervention
2. Positive Externalities Intervention

Question 27

Explain positive externalities Intervention?

Answer 27

Positive Externalities Intervention:
Graph: Subsidy or supply shift aligns social benefit with demand, promoting positive externality.
Outcome: Price decreases, quantity increases.