Competition: Practice Questions

• a.

  To help the government reduce the level of structural unemployment in the region.

• b.

  To ensure that all workers receive the highest possible national insurance contributions.

• c.

  To voluntarily lower the total demand for their product across the whole industry.

• d.

  To increase their market share and maximise their profits.

• a.

  Consumer demand becomes perfectly inelastic as competition increases.

• b.

  Consumers have less choice as firms agree to produce the exact same products.

• c.

  Consumers benefit from lower prices and a wider choice of products.

• d.

  Consumers face higher prices due to the increased costs of advertising by firms.

• a.

  The firm will produce too much output, leading to a waste of scarce resources.

• b.

  The firm will be forced by market forces to set prices equal to its average revenue.

• c.

  The consumer will have too many choices, leading to confusion and higher opportunity costs.

• d.

  The lack of competition can lead to higher prices and less incentive for the firm to innovate.

• a.

  Oligopoly

• b.

  Competitive market

• c.

  Factor market

• d.

  Monopoly

• a.

  An oligopoly has no barriers to entry, whereas a monopoly has very high barriers.

• b.

  An oligopoly always results in lower prices than a perfectly competitive market.

• c.

  An oligopoly is owned by the government, while a monopoly is always privately owned.

• d.

  An oligopoly consists of a few large firms that dominate the market, whereas a monopoly has only one.

Write your answer out first, then check it against the worked solution.