Chapter 5

• Competitive market

  A market that has many buyers and sellers
• Competitive market


  • Producers face no barriers to entry
• Profit maximisation


  It is assumed all firms want to maximise their profits
• Profit maximisation


  1. Firms have to find a way to lower their costs of production

  2. Firms can lower their prices
• Competition


  Firms compete through price competitions
• There is a limit to how low prices could go before making a loss
• Firms have to come up with other ways to entice customers
• As new firms enter a market

  Supply shifts to the right
• Supply shifting to the right

  Causes a reduction in price due to increased competition
• Increased competition

  Leads to increased efficiency, lowering costs of production
• Many firms in the market

  Demand would shift to the left as there are more substitutes
• Consumers


  • Benefit due to lower pot prices
  • Can receive bad quality products due to producers lowering costs
• Producers


  Have to spend profit
• Government


  Encourages competitive markets as it leads to increased well-being
• Non-competitive markets


  Markets that have a few sellers
• Monopoly


  A market with one seller
• Oligopoly


  A market with just a few sellers
• Characteristics of non-competitive markets

  • Barriers to entry
  • Product differentiation
  • Prices
  • Profit maximisation
• Consumers in non-competitive markets

  Face higher prices
• Producers in non-competitive markets

  Earn large profits
• Government in non-competitive markets


  Helps consumers by adding price caps on products