Types of markets
Competitive markets
- A competitive market has many firms selling similar goods, with easy entry.
- Firms must keep prices low and quality high, or buyers go elsewhere; they cut costs and innovate.
- Good for consumers: low prices, wide choice, good quality.
Practice
In a competitive market with many firms, each firm must:
Strong competition forces low prices and high quality, benefiting consumers.
Monopoly
- A monopoly is one firm (or one that controls most of a market), protected by barriers to entry (high start-up costs, controlling key supplies).
- It can charge high prices with little pressure to improve — but may gain economies of scale and fund research.
Practice
A monopoly can charge high prices because:
A single firm behind barriers to entry faces no competition, so it can charge more.
Practice
Competition tends to give consumers lower prices than a monopoly.
Competition drives prices down and quality up; monopoly tends to raise prices and reduce choice.
You've got it
Key idea
- competition: many firms, easy entry → low prices, choice, quality (good for consumers)
- monopoly: one firm, barriers to entry → high prices, less choice
- competition gives lower profit but hard work; monopoly gives higher profit but laziness