The competitive market system encourages innovation and technological advance, primarily through:

Competition policy is about applying rules to make sure businesses and companies compete fairly with each other. This encourages enterprise and efficiency, creates a wider choice for consumers and helps reduce prices and improve quality.

Low prices for all: the simplest way for a company to gain a high market share is to offer a better price. In a competitive market, prices are pushed down. Not only is this good for consumers - when more people can afford to buy products, it encourages businesses to produce and boosts the economy in general.

Better quality: Competition also encourages businesses to improve the quality of goods and services they sell – to attract more customers and expand market share. Quality can mean various things: products that last longer or work better, better after-sales or technical support or friendlier and better service.

More choice: In a competitive market, businesses will try to make their products different from the rest. This results in greater choice – so consumers can select the product that offers the right balance between price and quality.

Innovation: To deliver this choice, and produce better products, businesses need to be innovative – in their product concepts, design, production techniques, services etc.

Better competitors in global markets: Competition within the EU helps make European companies stronger outside the EU too – and able to hold their own against global competitors.

Watch the video to see how this works in practice Watch here to see how competition policy can have a positive effect in your life

You can download this video from the European Commission audiovisual website See copyright conditions		You can download this video from the European Commission audiovisual website See copyright conditions.

What's your role in all this?

You are a key player in keeping businesses competitive: your choice of which product to buy ultimately sets the direction that companies take. Also by staying informed - and reporting companies you think are not acting in a fair, competitive manner – you can do your bit to ensure businesses keep delivering more choice, quality, innovation and lower prices.

4.The competitive market system encourages innovation and technological advance, primarily through:A)the government's tax codeB)the process of "dollar voting"C)the guiding function of consumer needs and preferencesD)profitable returns to innovative firmsAnswer: DFeedback: Firms that successfully innovate will be rewarded with higher profits in a market system. Self-interest and pursuit of profits assures thatrival firms will spread any new technology.

5.Human specialization, or the division of labor:

6.Economic profits and losses:

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What does a competitive system encourage?

Which fundamental question about a competitive market system primarily focuses on technological progress?

Why did the command systems of the Soviet Union Eastern Europe and China fail?

What is the market system characterized by?