Igcse Economics Study Chapter 10

Front 1

1. What is price competition and non-price competition?

Back 1

1. Price competition refers to firms lowering their product prices lower than that of competing firms, so they can boost sales and profits. Non-price competition refers to firms creating wants for their products through other methods such as advertising.

Front 2

2. What is perfect competition?

Back 2

2. Perfect competition refers to firms making the best use of their resources when they face competition. The firms with the top quality and lowest price goods are successful.

Front 3

7. Give two methods that monopolies use to prevent competition and describe each.

Back 3

7. Monopolies use natural barriers and artificial barriers to entry to prevent competition.
Natural barriers refer to having the control of supply, when no other firm can provide them, experiencing economies of scale, have high expenses which new firms cant afford, and there are also legal considerations when only one firm is allowed in an industry.
Artificial barriers refer to barriers created by monopolies such as supply restrictions, where they threaten their suppliers not to sell to other firms or else the monopolies would not buy from them. They can also sell a wide range of products, which small firms cant always do.

Front 4

3. Give 4 characteristics of a perfect competitive market

Back 4

3. Homogeneous product (same goods), price takers (cannot influence price b/c competition), perfect information, freedom of entry and exit.

Front 5

8. Give 2 advantages and 2 disadvantages of a monopoly.

Back 5

8. Monopolies have economies of scale, therefore cost of producing an average good falls with the increase of output, so they are efficient. They can also afford research and development, providing better quality goods. They can offer lower prices than their competitors. They can also compete in global markets.
However, monopolies have disadvantages too. They can restrict their suppliers and increase prices and output, making them the only supplier so people would have to accept their goods at the set prices. They also offer bad services, since they don’t find it necessary to improve it with no competition available. There is also producer sovereignty, since there is no competition, it’s the producer who decides the best use of scarce resources.

Front 6

4. Why does perfect competition make the best use of scarce resources?

Back 6

4. Low prices, Efficiency, so they produce better quality goods and Customer sovereignty.

Front 7

9. What is product differentiation?

Back 7

9. When products that are similar are produced only with slight differences.

Front 8

5. What does normal profit refer to?

Back 8

5. When profits fall to the point of keeping existing firms in the industry but not high enough to attract new firms in search of high profits.

Front 9

10. What is competition policy? And how does it prevent monopolies from spreading?

Back 9

10. Competition policy refers to measures taken by the government to control the behavior of monopolies. It can use prohibition which bans and breaks up monopolies. It can make Regulations which allow monopolies but they have to act in public interest. And It can also Impose Fines upon monopolies that are abusing the market.

Front 10

6. What is a monopoly? What are its features?

Back 10

6. A firm that owns over 25% of the market share.A monopoly has no competition, has abnormal profits, they are the price makers, have barriers to entry, there is imperfect information and non-homogeneous products.

Front 11

11. What is the difference between informative and persuasive advertising?

Back 11

11. Informative advertising refers to the advertising that gives information about health and safety. Persuasive advertising doesn’t give information but persuades people to create a want for a specific product.