Competitive markets

What are the characteristics of a competitive market?

• Many buyers and sellers

• Homogeneous products

• Free entry and exit

What does it mean that competitive markets have many buyers and sellers?

Means that no single entity can influence the market price of production decisions significantly.

What does it mean that competitive markets have similar products offered?

Consumers have little reason to prefer one seller over another. Reduces possibility of firms creating brand loyalty or charging premium prices based on perceived differences.

What does it mean that there is free entry and exit?

New firms can enter the market easily, and existing firms can exit without facing significant barriers.

This encourages competition and prevents any single firm from gaining excessive market power.

What is a competitive market?

Where numerous sellers offer similar products or services to many buyers, and no single entity can control the market price.

What is price and choice generally like in a competitive market?

Lower prices and greater consumer choice.

Why are there lower prices?

Rivalry between firms in a competitive market pushes them to offer lower prices to attract customers.

Why is there greater choice for consumers?

Competition encourages businesses to develop and offer a wider array of goods and services, allowing consumers to choose what best suits their needs and preferences.

What is price competition?

• Firms lower their prices to gain customers and market share.

Examples of non-price competition

• small producers can compete by offering a specialist product, or more personalised customer service.

• convenient location

• quality of product

• advertising

Non-price competition often leads to consumer loyalty.

Why does better marketing increase demand?

Buyers are often more prepared to buy from a brand they know at higher prices.

How do competitive markets impact consumers?

• Lower prices

• Wider choice

• Better quality

Why do consumers benefit from lower prices in a competitive market?

Businesses must offer competitive prices to attract consumers, making goods and services more affordable.

How does competition encourage wider choice for consumers?

Competition encourages businesses to differentiate their goods and services, leading to a wider range of choices for consumers.

Why does competition lead to better quality of products?

Businesses may improve quality of their products to attract customers and gain a competitive edge. Leads to better quality products for consumers.

What are the impacts of competition on producers?

• Incentive to improve efficiency to remain competitive and profitable.

• More willing to innovate with new products to attract new demand

Why do producers compete?

• To enter a market

• Survival

• Profit

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