Question

What is a specific, real-life exemple of a seller in the world today that meets the definition of a price taker?

Your posting should be at least two paragraphs and specifically identify the undifferientiated product (remember- no brand names) that is sold by the type of producer which you are describing.

In a seperate posting, demonstrate your own understanding of the four characteristics of a price taker (versus a price searcher) in the product market. this should also be about two paragraphs.

Answer 1

In a perfectly competitive market structure, a single firm is a price taker in the industry as the price is set by the market forces of demand and supply. This is due to the fact that no firm is powerful enough to solely manipulate the market price.

Let us take an example of a firm that operates and produces onions for consumption needs. As onions are a perfect market commodity ( ie: An onion from one vendor cannot be distinguished from an other onion from an other vendor) , a firm which supplies such a commodity faces perfect competition and thus is a price taker in the industry. Let us see a diagram.

The industry or the market determines the price for onions and a single firm takes the price set by the market.

Characteristics of a Perfect competitive firm:

1) Large number of sellers and buyers: In a perfect market, there are a lot of suppliers of the products demanded in the market. This makes individual seller's output quantity insignificant and thus a single seller does not have the power to manipulate market price.

2) Homogenous products: In a perfect competitive firm, the products the firm supply are homogenous in nature. This means that the products are very similar to the other commodities supplied by other firms and cannot be distinguished between each other visually. Eg: vegetables , fruits etc.

3) Perfect knowledge: All suppliers have complete knowledge about industry as well as production methods. This ensures that the suppliers do not sell below market price and the all suppliers have the same cost of production thus avoiding abnormal losses in the short run.

4) Free entry and exit: All firms in a perfect market have complete freedom to enter into industry and exit industry. The cost incurred to set up is very low compared to firms in other types of market structure and firms are able to exit industry when they don't make enough revenue, as such a single firm's output quantity is insignificant and thus entry and and exit to industry is relatively easy for firms in a perfectly competitive market.