Economics Supply And Demand Questions Medium
In economics, the terms "price taker" and "price maker" refer to different types of market participants based on their ability to influence the price of a good or service.
A price taker is a market participant who has no control over the price and must accept the prevailing market price as given. In other words, they have to take the price determined by the market forces of supply and demand. Price takers are typically found in perfectly competitive markets where there are numerous buyers and sellers, homogeneous products, and free entry and exit. Individual buyers and sellers in such markets have no market power and must accept the equilibrium price determined by the overall market conditions.
On the other hand, a price maker is a market participant who has the ability to influence or set the price of a good or service. Price makers are typically found in markets with imperfect competition, such as monopolies, oligopolies, or monopolistic competition. In these market structures, individual firms have some degree of market power, allowing them to have control over the price. Price makers can adjust the price to maximize their profits or gain a competitive advantage.
In summary, the key difference between a price taker and a price maker lies in their ability to influence the price. Price takers have no control over the price and must accept the market-determined price, while price makers have the power to set or influence the price based on their market position and level of competition.