How is a seller under perfect competition a price taker and not a price maker? What is the relevance the
characteristic that there are large number of seller in this context? 6marks
Answers
Explanation:
Under perfect competition, the price of the commodity is determined by the equilibrium between demand and supply of the industry. No individual firm can influence the price as he has the insignificant share of the total quantity of a commodity. Thus a firm has to accept the price as determined by the industry. Therefore it is said that a firm under perfect market is a pricetaker. The presence of a large number of buyers and sellers is an important condition of a perfectly competitive market. It indicates that every buyer and seller is so small relative to the entire market that he cannot affect the market price by changing his purchases or output.Read more on Sarthaks.com - https://www.sarthaks.com/355088/how-seller-under-perfect-competition-price-taker-what-the-relevance-the-characteristic
Under perfect competition, the price of the commodity is determined by the equilibrium between demand and supply of the industry. No individual firm can influence the price as he has the insignificant share of the total quantity of a commodity. Thus a firm has to accept the price as determined by the industry. Therefore it is said that a firm under perfect market is a pricetaker. The presence of a large number of buyers and sellers is an important condition of a perfectly competitive market. It indicates that every buyer and seller is so small relative to the entire market that he cannot affect the market price by changing his purchases or output.