ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Competition attenuates the incentive to do so and prompts firms to increase quality and/or decrease prices. In most models, the entry of new competitors leads to price reductions by putting more competitive pressure on market incumbents.

Detailed explanation-2: -Basic economic theory demonstrates that when firms have to compete for customers, it leads to lower prices, higher quality goods and services, greater variety, and more innovation.

Detailed explanation-3: -Greater competition among sellers results in a lower product market price. If the same popular toy had numerous producers instead of only one, the price would be lower because the producer knows the consumer could get the toy somewhere else. The cycle of competition between sellers never ends.

Detailed explanation-4: -Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them. Competition among sellers results in lower costs and prices, higher product quality, and better customer service.

Detailed explanation-5: -Competition-driven prices are often market-oriented and are set based on how others are pricing products and services in the marketplace. So, the seller makes a decision based on the prices set by its competitors. Prices between competitors may not necessarily be the same; one competitor may end up lowering its price.