Question

Competition among sellers (producers) lowers costs and prices, and encourages producers to produce more of what consumers are willing and able to buy.
A. Explain how the above (free market competition) would be an advantage for you, the consumer.

B. Describe how an oligopoly OR monopoly could inhibit competition among businesses.

Answer 1

Answer:

A. Explain how the above (free market competition) would be an advantage for you, the consumer.

Free market competition is advantageous to the consumer because it promotes the supply of many goods and services, at a lower price than other market structures like oligopoly or monopoly.

In the free market, there are many firms, none have market power, and they produce goods and services that have many substitutes. This means that if a firm raises the price of a good, consumers simply flock to another firm that offers a similar product. This mechanism obliges firms to offer their goods at the market-clearing price, which is the best price for the consumer.

B. Describe how an oligopoly OR monopoly could inhibit competition among businesses.

Oligopolies ocurr when there are only a few firms in the market, and monopoly ocurrs when there is only one firm. These two market structures allow firms to charge higher prices than the market-clearing price, and to supply less quantity than the market-clearing quantity.

Besides, oligpolies and monopolies are characterized by high barriers to entry and exit, which keep potential competing firms out of market, inhibiting competition.