ECON 202 Chapter 12
A price taker is
A buyer or seller that is unable to affect the market price. -firm that is unable to affect the market price.
How are prices determined in perfectly competitive markets? In perfectly competitive markets, prices are determined by
Perfectly competitive markets A market that meets the following conditions: 1. Many buyers and sellers. Each individual buyer and seller is small relative to the entire market, and, as a result, cannot affect the market price. 2. All firms sell identical products. There can be no verifiable difference between the goods and services sold under perfect competition. 3. There are no barriers to entry into the market. Prices in perfectly competitive markets are determined by the interaction of demand and supply. The actions of any single consumer or any single firm have no effect on the market price because consumers and firms are price takers. Consumers and firms have to accept the market price if they want to buy and sell in a perfectly competitive market because they are small relative to the market and because the firms sell identical products.
Why do single firms in perfectly competitive markets face horizontal demand curves?
With many firms selling an identical product, single firms have no effect on market price.
Which of the following is a characteristic of perfectly competitive markets?
The products sold by all firms in the market will be identical
Explain why it is true that for a firm in a perfectly competitive market that P = MR = AR. In a perfectly competitive market, P = MR = AR because
firms can sell as much output as they want at the market price.
When are firms likely to be price takers? A firm is likely to be a price taker when
it represents a small fraction of the total market
For a market to be perfectly competitive, there must be
many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.