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February 22, 2020 

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ABSTRACTION: Simplifying the complexities of the real world by ignoring (hopefully) unimportant details while doing economic analysis. Abstraction is often criticized because it's, well, it's JUST NOT REALISTIC. However, when done correctly (ignoring things that JUST DON'T MATTER), then the pursuit of knowledge is greatly enhanced by abstraction. For example, when travelling cross country along a high-speed interstate highway, a paper road map is a handy tool. It shows towns and cities along the way, the major intersections, rest stop locations, and other important points of interest. However, it ignores unimportant details. It doesn't realistically show the location of every tree, bush, or blade of grass. Why bother? This information won't enhance your road trip.

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PRICE TAKER:

A buyer or seller that has no market control and is not able to affect the price of a good. It must "take" or accept the going market price. The market structure that exemplifies price taker is perfect competition. In fact, perfect competition is the only example of price taker. This is one of two alternatives related to control over price. The other is price maker. Price taker is also termed price seeker.
The lack of market control is what creates a price taker. A buyer or seller that has NO market control must accept the existing market price when buying or selling a good. It has no choice. Pay the going price and buy the good. Do not pay the going price and do not buy the good. Accept the going price and sell the good. Do not accept the going price and do not sell the good. For a price taker, no other options exist.

Perfect competition is THE example for pricer taker because it contains a relatively large number of participants that trade an identical product. Participants are free to enter and exit the market and everyone has complete knowledge of all prices.

Each buyer competes against thousands, hundreds of thousands, or even millions of other buyers when they seek to purchase a good. Each seller competes against thousands, hundreds of thousands, or even millions of other sellers when they seek to sell a good.

Sellers do not sell to a buyer trying to pay less than going market price, because thousands, or even millions of other buyers are willing and able to pay the going price. Buyers do not buy from a seller trying to charge more than going market price, because thousands, or even millions of other sellers are willing and able to charge the going price.

Each participant is an insignificant part of the overall market. Should a given buyer decide to buy more or less or nothing at all, the market is unaffected. Should a given seller decide to sell more or less or nothing at all, the market is unaffected.

Price-taking buyers and sellers face perfectly elastic demand and supply curves. For example, a perfectly competitive seller faces a perfectly elastic demand curve, one that is horizontal at the market price. It can sell any quantity that it wants at the going market price. A perfectly competitive buyer faces a perfectly elastic supply curve, one that is horizontal at the market price. It can buy any quantity that it wants at the going market price.

Facing a constant market price and perfectly elastic demand or supply curve means that price takers efficiently allocate resources. The value of goods produced is equal to the value of goods not produced.

<= PRICE STABILITYPRINCIPAL-AGENT PROBLEM =>


Recommended Citation:

PRICE TAKER, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2020. [Accessed: February 22, 2020].


Check Out These Related Terms...

     | market control | price maker | market structures | market structure continuum | perfect competition | monopoly | oligopoly | monopolistic competition | monopsony | oligopsony | monopsonistic competition |


Or For A Little Background...

     | firm | industry | business | market | efficiency | demand | supply | competition among the few | competition among the many | demand price | supply price |


And For Further Study...

     | bilateral monopoly | duopoly | imperfect competition | perfect competition, efficiency | perfect competition, characteristics | monopoly, efficiency | monopoly, characteristics | monopolistic competition, efficiency | monopolistic competition, characteristics | collusion, efficiency | oligopoly, characteristics |


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