![]() The opposite concept is a price maker – when a firm has monopoly power and is able to choose which price to set because consumers have no alternative.A consumer who goes shopping in a supermarket will be a price taker, you can’t bargain with the supermarket to ask for discounts.They will have to accept the market price for currency sales as it is easy for buyers to compare. If a company tries to sell foreign exchange at a higher price than the market price, it will be to no effect. If they try to sell their potatoes at a higher price they will not be able to sell. If a grocery seller is selling produce in a market, then they will need to set a price at the same as the market price.If the firm tried to charge a higher price than P1, it would be unable to sell because consumers can buy at the market price elsewhere.The firm has to be a price taker and charge P1 also. A firm in perfect competition has a perfectly elastic demand curve and makes normal profits.The market equilibrium price is set where S=D, setting a market price of P1.Freedom of entry and exit – If prices are too high and firms make supernormal profit, it will encourage new firms to enter the market.If the product is the same, consumers can easily switch to alternatives. There is perfect information – consumers will know cheaper goods are available.This is because if they try to sell at a higher price, consumers will not buy. ![]() If a market is perfectly competitive, then every firm will be a price taker. When a firm is a price taker – it means they have no ability to set a price that they would like to charge. This occurs when a firm or consumer has no option but to accept the price set by the market.
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