1
Q
Competition
A
Where different firms are trying to sell a similar product to a consumer
2
Q
Price competition
A
Cutting Prices
- More consumer and greater market share
- Those who cannot cut price may go out of business
-Easier for large firms with many products to sell
3
Q
Non- Price competition
A
Any way other than price
- e.g. Marketing and advertising
- Offering a specialist service
-Offering a better customer experience
- Offering a better quality product
4
Q
Effects of competition on producers
A
- Cutting costs to maintain profits
- Incentivizes innovation to keep customers with new products
- Improving productivity
- Lose Customers are possibly go out of business
- May have to replace workers with technology: costs money and workers are often also consumers
5
Q
Impacts of competition on consumers
A
- Cheaper prices means that consumers can buy more, leading to a rise in living standards
-Improved quality of goods and services
-Innovation gives consumers more choice
-Increased consumer sovereignty - Innovations may be harmful (e.g. pesticides)
- Quality may fall if producers ‘cut corners’
- Marketing may persuade consumers to buy what they do not want
6
Q
Monopoly
A
A sole producer or seller of a good or service
7
Q
Oligopoly
A
Where a small number of firms control the majority of the market
8
Q
Characteristics of Monopoly
A
- usually very large
- one main producer
- Can set price, but not quantity
- are efficient due to large economies of scale
9
Q
Characteristics of Oligopoly
A
- Can be large but can have smaller firms
- Many firms
- Price is set by rivals
- usually not seen as economically efficient
10
Q
Characteristics of competitive markets
A
- Relatively small
- Many firms
- Price set my supply and demand
- Price should be lower and quantity should be higher
- Competitive markets normally lead to economic efficiency
Econ Paper 1
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