Chapter 21: Problem 19

What are the gains from competition?

Short Answer

Expert verified

The gains from competition include improved economic efficiency, lower prices, higher quality products and services, innovation, increased consumer choice, job creation, and encouragement of entrepreneurship. These benefits contribute to higher consumer welfare, an efficient allocation of resources, and increased economic growth.

Step by step solution

Economic Efficiency

Competition helps improve economic efficiency by ensuring that resources are allocated to their most productive use. This means that businesses produce goods and services that consumers want, at the lowest possible cost. In a competitive market, inefficient firms will be driven out, which leads to a more efficient allocation of resources.

Lower Prices

When businesses compete with one another, they have to lower their prices to attract customers. This means that consumers can buy goods and services at lower prices, leading to an increase in consumer welfare.

Higher Quality Goods and Services

Competition encourages businesses to improve the quality of their products or services in order to differentiate themselves from rivals and increase market share. As a result, consumers benefit from higher quality goods and services, which can lead to increased consumer satisfaction.

Innovation

In a competitive environment, businesses need to constantly innovate and come up with new products and services to stay ahead of their competitors. This drive for innovation leads to the development of new technologies, products, and services that can bring about significant progress and improve living standards.

Improved Consumer Choice

Competition leads to a wider variety of goods and services being offered in the market, giving consumers more choice. With more options to choose from, consumers can find products and services that better meet their needs and preferences.

Job Creation

Competition can lead to increased productive activity, as new businesses enter the market and existing businesses strive to grow. This can result in the creation of more jobs, which in turn leads to higher employment levels and greater economic growth.

Encourage Entrepreneurship

Competitive markets create opportunities for entrepreneurs to enter and develop new ideas, products, and services, fostering innovation and economic growth in the process. This encourages a culture of entrepreneurship, which can have positive spillover effects on the broader economy. In summary, the gains from competition include improved economic efficiency, lower prices, higher quality products and services, innovation, increased consumer choice, job creation, and encouragement of entrepreneurship. These benefits contribute to higher consumer welfare, an efficient allocation of resources, and increased economic growth.

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