GACE Business Education Practice Exam

The market structure that encourages competition among many firms is characterized by a large number of sellers who are each trying to gain market share and attract customers. In a competitive market, firms offer similar products, and there is free entry and exit for businesses. This means that new firms can enter the market easily if they see an opportunity to make profits, resulting in a dynamic environment that fosters competition.

In such a market, prices are typically driven down due to competition, as each firm strives to offer better prices or quality to capture more consumers. Consumers benefit from lower prices, higher quality goods, and a wider variety of choices due to the competition among numerous firms. Ultimately, this structure incentivizes innovation and efficiency as firms seek to differentiate themselves in the marketplace.

Other market structures, such as monopoly, monopolistic competition, and oligopoly, do not provide the same level of competition. A monopoly occurs when there is only one firm dominating the market, which stifles competition. Monopolistic competition involves many firms, but they often differentiate their products, which can lead to less direct competition among them. Oligopoly features a small number of firms that dominate the market, and their interdependence can also reduce competition. Hence, the competitive market best exemplifies