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Competition in a Free Market Economy

Competition in a Free Market Economy. What is Competition?. Competition is the struggle between buyers and sellers to get the best products at the lowest price Competition between sellers keeps the cost of production low and the quality of goods higher than they would otherwise be

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Competition in a Free Market Economy

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  1. Competition in a Free Market Economy

  2. What is Competition? • Competition is the struggle between buyers and sellers to get the best products at the lowest price • Competition between sellers keeps the cost of production low and the quality of goods higher than they would otherwise be • Buyers compete among themselves to find the best products at the lowest price

  3. Types of Competition • Pure (Perfect) Competition • The market condition where there is a large number of sellers that offer very similar items • Characteristics: • Usually lots of small firms in market • Supply and demand set prices • Examples: • Most agricultural markets

  4. Types of Competition • Monopolistic Competition • The market condition in which several suppliers offer a similar, yet differentiated, product (mixed between pure competition and true monopoly) • Characteristics: • Each independent firm makes decision about price and output, based on cost of production, product and market • Usually many firms that sell similar products, but are differentiated • Free entry and exit • Examples: • Hotel business • Restaurant business • Consumer Services (hairdressing)

  5. Types of Competition • Oligopolies • The market condition in which very few suppliers offer very similar products or services • Characteristics: • Few sellers forces them to be aware of one another’s decisions. Often their decision change due to other firms influence. • Products can be homogeneous or differentiated • Usually price setters • Control most of market • Entry is difficult due to government regulations or patents

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