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.
FAQs
What does being a price taker mean?
A price taker is a firm or individual who has no control over the market price and must accept the prevailing price set by supply and demand. This is common in perfectly competitive markets.
Why are they called price takers?
They are called price takers because they lack the market power to influence prices and must “take” the price as given by the market.
What is an example of a price taker?
Farmers selling wheat in a competitive market are price takers, as they sell their product at the market price without being able to negotiate.
Is a monopoly a price taker?
No, a monopoly is a price maker, as it has significant control over setting the price due to lack of competition.
Which firms are price takers?
Firms in perfectly competitive markets, such as agricultural producers or small retailers, are typically price takers.
