2.  Competition = ? the rivalry that exists between firms when trying to sell goods to the same group of customers  Do Getting started P96

3. A large number of buyers and sellers Each firm’s products are close substitutes Low barriers to entry = obstacles that might discourage entry to the market, e.g. technically difficult (software), high set-up costs (car manufacturing), legal (patents restricting production, e.g. medical drugs) No control over price Free flow of information regarding products, prices, production, etc.  List as many examples of competitive markets as you can think of

4.  Would you like your firm to be in a competitive market? Why/ Why not? When faced with competition firms must;  be efficient & keep costs to a minimum  have quality products & good customer service  charge competitive prices  innovate to improve products and use product differentiation = make your product different from rivals’ products innovate  receive limited profit as high profit will mean the entrance of new firms to the market  Think; How do firms selling water differentiate their product?

5.  Are competitive markets good for the consumer? Why/ why not? Advantages lower prices more choice better quality Disadvantages  market uncertainty as businesses fail  lack of innovation due to limited profit so limited R&D and product development  Try question 2

6. Advantages;  Resources are allocated efficiently so less waste of resources (as with free market VS planned economy).  Innovation leads to better products & production, so  living standards Disadvantages;  Due to firm failure resources may be wasted, e.g. unemployment & unused machinery Do exam practice