3.5.7 The dynamics of competition and competitive market processes

• Innovation in business models enhances competitive advantage and disrupts market equilibrium.

  True
• Firms exiting a market reduce market supply and increase prices.


  True
• The dynamics of competition can move a market towards or away from a perfectly competitive state.


  True
• In perfect competition, firms are price takers
• In perfect competition, individual firms determine both price and quantity.

  False
• Monopolies face high barriers to entry, protecting their market position.


  True
• Impact of entry and exit mechanisms in competitive markets

  1️⃣ New firms enter or existing firms exit

  2️⃣ Market supply adjusts

  3️⃣ Prices are affected
• Fierce competition leading to significant price cuts is referred to as a price war.
• What is the impact of innovation on market competition?

  Enhances competitive advantage
• What is the effect of firms joining or leaving the market on industry structure?

  Alters industry structure
• The dynamics of competition can move a market toward or away from a perfect competitive state.


  True
• Order the following processes based on their impact on competitive intensity:

  1️⃣ Price Wars

  2️⃣ Market Consolidation

  3️⃣ Market Entry/Exit

  4️⃣ Innovation
• In a perfectly competitive market, firms are price takers.

  True
• The key feature of perfect competition is that the market, not individual firms, determines the equilibrium price.
• Match the market structure with its competitive characteristic:

  Perfect Competition ↔️ Competition on efficiency

  Monopoly ↔️ Lack of competitive pressure

  Oligopoly ↔️ Competition on non-price factors
• Entry and exit mechanisms lead to more efficient resource allocation in competitive markets.


  True
• Technological change refers to advancements in technology used in production.
• Match the government policy with its competitive impact:

  Antitrust Policies ↔️ Prevent monopolistic practices

  Industry Regulations ↔️ Create barriers to entry

  Innovation Policies ↔️ Incentivize research and development
• The dynamics of competition refer to the forces that shape the behaviour and structure of firms in a market over time
• Fierce competition leading to significant price cuts is referred to as a price war.
• Mergers and acquisitions reduce the number of firms in a process called consolidation
• Steps to achieve market equilibrium in a perfectly competitive market

  1️⃣ Market supply equals market demand

  2️⃣ Price is determined by supply and demand

  3️⃣ Equilibrium quantity is traded
• Match the market structure with its price and quantity determination:

  Perfect Competition ↔️ Market-determined price and quantity

  Monopoly ↔️ Firm-set price and quantity

  Oligopoly ↔️ Strategic pricing and quantity
• In perfect competition, firms must compete on efficiency and innovation to maintain profitability.
• In less competitive structures like monopolies, firms may experience dynamics like price wars and mergers.
• Entry and exit mechanisms help adjust market supply to meet demand changes.

  True
• Fierce competition leading to significant price cuts is known as a price war.
• Mergers and acquisitions that reduce the number of firms in a market are called consolidation.
• What are the dynamics of competition?

  Forces shaping market behavior
• What are the conditions for market equilibrium in a perfectly competitive market?

  Supply equals demand
• Match the market structure with its characteristic feature:

  Perfect Competition ↔️ Firms are price takers

  Monopoly ↔️ Firm sets the price

  Oligopoly ↔️ Strategic pricing by rivals
• How is the equilibrium price determined in a perfectly competitive market?

  Intersection of supply and demand
• What is the influence of market structure on competitive processes?

  Shapes firm behavior
• What role do entry and exit mechanisms play in competitive markets?

  Adjust market supply
• What is the difference between innovation and technological change?

  Innovation creates new products
• Innovation and technological change increase consumer welfare through lower prices and better quality.


  True
• How do antitrust policies promote competition?

  Prevent monopolistic practices