Price-Taker

A price taker is a firm that is so small that it has little or no influence on the market price of its product. This is because the firm’s demand curve is perfectly elastic, meaning that it can sell all of its output at the market price.

Characteristics of a price taker:

• Small size: The firm is small enough that its output has a negligible impact on the market price.
• High demand elasticity: The firm’s demand curve is perfectly elastic, meaning that it can sell all of its output at the market price.
• No market power: Price takers have no market power, meaning that they cannot influence the market price of their product.
• Take-it-or-leave-it pricing: Price takers take the market price as given and cannot change it.

Examples of price takers:

• A small firm that sells vegetables in a local market.
• A farmer who sells wheat to a grain elevator.
• A firm that produces generic drugs.

Key differences between price takers and price makers:

• Price takers: Sell their output at the market price, take it or leave it.
• Price makers: Create the market price by setting their own price for their product.