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Chapter 18: Competitive Markets Pages 132-138: EC2 Economics
Chapter 18: Competitive Markets Pages 132-138: EC2 Economics
Markets
pages 132-138
EC2 Economics
Key Terms
KEY TERM: MATCHING
A. attempt by a firm to distinguish its product from
1. Competition that of a rival
1. lower prices
a. Why? substitutes mean consumers can switch
2. more choice
a. Why? product differentiation/more sellers
3. better quality
a. Why? competitors increase their quality to attract
customers
What are the disadvantages to consumers from a
competitive market? (2) ADD
1. market uncertainty
a. Why? firms entering and leaving the market
(consumer is inconvenienced)
● Example: 13,000 passengers stranded after French
airline goes bankrupt
2. lack of innovation
a. Why? low profit means less money for product
development
Competition and the Economy
What are the advantages to the economy from a
competitive market? (2) ADD
1.Marketing
2.Financial
3.Purchasing
4.Managerial
5.Risk-Bearing
6.Technical
MATCHING - INTERNAL ECONOMIES OF SCALE
Internal EOS Example
1. Marketing C. We make a lot of deliveries so it makes sense for us to own
our own delivery truck instead of paying someone to do it for us
2. Financial D. We put pressure on banks when negotiating the price of our
loans
3. Purchasing A. We bulk buy so we get better discounts
• Bureauacracy
• Communication Problems
• Lack of Control
• Distance Between Senior Staff and Shop Floor
Workers