Lesson 18- Competitive markets

Question 1

What are the 5 features of a competitive market?

Answer 1

1. Large number of buyers and sellers
2. Many close substitutes
3. Low barriers to entry and exit
4. Firms are price takers
5. Perfect information- no secrets. Both buyers and sellers are fully ware of market conditions

Question 2

What are the effects of a highly competitive market on firms? (5)

Answer 2

1. Charge lower prices
2. Improve product quality
3. Innovations
4. Improve choice
5. Non- price competition

Question 3

Define competitive market

Answer 3

Referred to when there are a large amount of buyers and sellers and no single buyer or seller can affect the market.

Question 4

Define barriers to entry

Answer 4

The obstacles a new firm experiences when entering a new industry.