Economics of Public Issues (20th Edition) (The Pearson Series in Economics)
Economics of Public Issues (20th Edition) (The Pearson Series in Economics)
20th Edition
ISBN: 9780134531984
Author: Roger LeRoy Miller, Daniel K. Benjamin, Douglass C. North
Publisher: PEARSON
Question
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Chapter 18, Problem 1DQ
To determine

The difference between the two ways of beating competition.

Concept introduction:

Competition in a market:

It is a way by which the existing firm in the market tries to have dominance in the market with a larger market share. The way of dominance depends on the quality, restrictive laws, and the price of goods provided to the consumers.

Explanation:

  • Yes, there is a lot of difference between the two ways of beating competition. Where the first way is to provide good quality services at low price and the other way is to restrict the rival’s entry with laws.
  • When a firm decides to decrease the price of its good and improve the quality of services rendered to the customers then it benefits fully to the consumers. When a firm decreases the price of the product then the purchasing power of the customer increases. Their ability to get large quantity of goods at the same income level increases. This increases consumer welfare.
  • On the other hand, when a firm gets a law passed against the rival competitors then it harms the entrant as well as the consumers. The number of firms in the market decreases due to the restrictive laws. Hence, the consumer faces higher price and get very few choices. This leads to decrease in the welfare of the consumer as well as the entrant firm.
  • Whereas, the existing firm in the market gets benefited from the restrictive laws. This is because of higher price and less competition in the market.

Expert Solution & Answer
Check Mark

Explanation of Solution

  • Yes, there is a lot of difference between the two ways of beating competition. Where the first way is to provide good quality services at low price and the other way is to restrict the rival’s entry with laws.
  • When a firm decides to decrease the price of its good and improve the quality of services rendered to the customers then it benefits fully to the consumers. When a firm decreases the price of the product then the purchasing power of the customer increases. Their ability to get large quantity of goods at the same income level increases. This increases consumer welfare.
  • On the other hand, when a firm gets a law passed against the rival competitors then it harms the entrant as well as the consumers. The number of firms in the market decreases due to the restrictive laws. Hence, the consumer faces higher price and get very few choices. This leads to decrease in the welfare of the consumer as well as the entrant firm.
  • Whereas, the existing firm in the market gets benefited from the restrictive laws. This is because of higher price and less competition in the market.
Economics Concept Introduction

Concept introduction:

Competition in a market:

It is a way by which the existing firm in the market tries to have dominance in the market with a larger market share. The way of dominance depends on the quality, restrictive laws, and the price of goods provided to the consumers.

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Chapter 18 Solutions

Economics of Public Issues (20th Edition) (The Pearson Series in Economics)

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