In the context of competitive markets, what does competition among economic units primarily lead to?

• A. Lower prices and increased efficiency
• B. Higher barriers to entry
• C. Reduced consumer choice
• D. Monopoly power for individual firms

Answer: (A)

Verified step by step guidance

1. Understand the nature of competitive markets: In a perfectly competitive market, there are many buyers and sellers, and no single firm can influence the market price.
2. Recognize the role of competition: Firms compete by trying to attract consumers, which typically leads to improvements in products, services, or prices.
3. Analyze the effects of competition on prices: Because firms cannot set prices above the market equilibrium without losing customers, competition tends to drive prices down toward the cost of production.
4. Consider efficiency: Competition encourages firms to minimize costs and use resources efficiently to maintain profitability at lower prices.
5. Evaluate the incorrect options: Higher barriers to entry, reduced consumer choice, and monopoly power are generally associated with less competitive markets, not competitive ones.