4.1.1 How can an exit of firms in a perfect market affect the economy? (8)
4.1.2 Analyse measures that may be used by the government to promote competition in the economy. (8)
4.1.3 Outline the challenges that the competition policy in South Africa face in achieving their goals. (8)
Answer (2)
The exit of firms in a perfect market can lead to decreased supply, increased prices, job losses, and reduced consumer choices, impacting overall economic growth. Governments can promote competition through antitrust laws, deregulation, subsidies, and consumer protection, although challenges in South Africa include market concentration, regulatory barriers, and political influences. Overall, effective competition policy is vital for a healthy economy but faces various hurdles in implementation.
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4.1.1 How can an exit of firms in a perfect market affect the economy?
In a perfect market, firms are price takers and supply homogeneous products. If firms exit the market:
Reduction in Supply : The overall supply of the product decreases, leading to a potential increase in prices as the remaining firms adjust to the change.
Increased Prices : As supply decreases, the market equilibrium shifts, potentially leading to higher prices which can adversely affect consumers by reducing their purchasing power.
Resource Reallocation : Resources that were once used by exiting firms will need to reallocate to other industries or sectors, which may lead to temporary unemployment or inefficiencies until the reallocation is complete.
Market Efficiency : If the exiting firms were inefficient, their departure might increase the overall efficiency of the market as only the more efficient firms remain.
Consumer Choice : Less competition can decrease consumer choice, as fewer firms mean fewer varieties and options of the same good.
Impact on Workers : Employees from exiting firms may face job loss, affecting their income and purchasing power.
4.1.2 Analyse measures that may be used by the government to promote competition in the economy.
Governments can use several measures to enhance competition:
Antitrust Laws : Implementing and enforcing laws that prevent monopolies and promote fair competition.
Deregulation : Reducing excessive regulation in specific industries to encourage new entrants and innovation.
Reducing Barriers to Entry : Lowering or eliminating tariffs, quotas, or licenses that prevent new firms from entering a market.
Support for Small and Medium Enterprises (SMEs) : Providing tax incentives and subsidies to small businesses can help them compete against larger, established companies.
Consumer Protection : Legislation that ensures fair practices and pricing can prevent large companies from taking advantage of monopolistic positions.
Public Ownership and Privatization : The government may step in or withdraw from certain industries to stabilize competition levels.
4.1.3 Outline the challenges that the competition policy in South Africa faces in achieving their goals.
The competition policy in South Africa, aimed at promoting and maintaining competition in its economy, faces several challenges:
Market Concentration : Several industries are dominated by a few large firms, making effective competition difficult to achieve.
Regulatory Challenges : Ensuring comprehensive enforcement of competition policies in a vast and diverse economy can be complex and resource-intensive.
Lack of Awareness : Businesses and the public may not be fully aware of competition laws, reducing the effectiveness of enforcement efforts.
Economic Inequality : High levels of economic inequality can skew competition, as smaller or disadvantaged firms struggle to compete with established firms.
Political Influence : Government policies and decisions may sometimes favor certain industries or firms, undermining fair competition.
Legal and Administrative Boundaries : Legal battles in maintaining competitive practices can be lengthy and costly, potentially slowing down enforcement and compliance efforts.
