A Level Economics AQA Practice Exam

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What does product differentiation aim to achieve?

  1. Reduce production costs

  2. Distinguish products from competitors

  3. Enhance employee motivation

  4. Lower barriers to entry

The correct answer is: Distinguish products from competitors

Product differentiation primarily aims to distinguish products from competitors in the eyes of consumers. This distinction can be based on various features such as quality, design, branding, or other unique attributes that set a product apart from similar offerings in the market. By achieving this differentiation, firms can create a competitive advantage, allowing them to capture a larger market share or command higher prices due to the perceived value added through unique characteristics. Additionally, when products are successfully differentiated, it reduces direct competition since consumers may develop brand loyalty, leading to less price sensitivity. This can ultimately enhance profitability for the firm as well.

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