Competitive markets Edexcel International GCSE Economics revision
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In plain words
In a competitive market there are many firms selling much the same thing, and new ones can start up easily. No single firm can push the price up, because customers would simply go next door.
That pressure is good for the buyers, and hard on the sellers.
4 things to know
- A competitive market has many firms, similar products, and low barriers to entry, so new firms can join easily.
- Effect on price: low, because firms must match their rivals. On quality: high, to keep customers. On choice: wide. On profit: low.
- Advantages: consumers gain from low prices, good quality and choice, and firms are pushed to be efficient and to innovate.
- Disadvantages: firms may be too small to gain economies of scale, low profits leave little for research, and firms that cannot keep up close down, so jobs are lost.
Tips and tricks
- Barriers to entry are what stop new firms joining a market. Low barriers are what make a market competitive.
- Give effects under the four headings the syllabus uses: price, quality, choice and profit.
It lands in your notebook with its questions as flashcards.
Competitive markets: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which is a characteristic of a competitive market?
Many sellers compete for the same customers.
What is the likely effect of more competition on consumer choice?
More firms offer more versions of the product.
Why are profits usually low in a competitive market?
Any firm that charges more loses sales to its rivals.
Which is an advantage of competition for consumers?
Firms improve their products to attract and keep customers.
What makes it easy for new firms to join a market?
With little to stop them, new firms enter when there is profit to be made.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Competitive markets
Edexcel International GCSE Economics 4EC1 · 8 marks · papermunch.org
Name ______________________________ Date ______________
State two characteristics of a competitive market.[2]
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Any two of: many firms, similar products, low barriers to entry, each firm has little control over price.
Explain why prices tend to be low in a competitive market.[3]
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There are many firms selling similar products. If one charges more, customers buy from a rival, so each firm has to keep its price low to keep its sales.
Explain one disadvantage of competition for firms.[3]
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Competition keeps prices down, so profits are low. The firm has less money to invest in new machinery or research, and may be forced to close if it cannot cut its costs.
Answers: Competitive markets
- 1. Any two of: many firms, similar products, low barriers to entry, each firm has little control over price.
- 2. There are many firms selling similar products. If one charges more, customers buy from a rival, so each firm has to keep its price low to keep its sales.
- 3. Competition keeps prices down, so profits are low. The firm has less money to invest in new machinery or research, and may be forced to close if it cannot cut its costs.