In a perfectly competitive market, all producers sell identical goods or services. Additionally, there many buyers and sellers.
Because of these two characteristics, both buyers and sellers in perfectly competitive markets are price takers.
Reasons :
All producers sell identical goods or services -
The products offered for sale in the market are identical in all respects like size, shape, quality, color, etc. Since each firm produces 100% identical products, their products can be readily substituted for each other. So, the buyer has no specific preference to buy from a particular seller only.
A large number of buyers and sellers -
The number of sellers is so large that the share of each seller is insignificant in the total supply. Hence, an individual seller cannot influence the market price. Similarly, a single buyer's share in the total purchase is so insignificant because of their large numbers that an individual buyer cannot influence the market price.
A firm is a Price-taker -
Price-taker means that an individual firm has no option but to sell at a price determined by the industry. under perfect competition, an individual firm cannot influence the price on its own as its share in total market supply is negligible.
Therefore, a firm plays no role in price determination. It can affect neither the supply nor the demand in the market.
It is true that the market for Public utilities, like gas and electricity, does not exhibit the two primary characteristics that define perfectly competitive markets.
Public utilities like gas and electricity are examples of monopoly so in monopoly, two primary characteristics are :
No close substitutes, as in monopoly there is a single seller selling a product so there is no other seller selling the same product or service.
Price maker - In monopoly, firm and industry, are one and the same thing so, a firm has complete control over the industry output. As a result, a monopolist is a price-maker.
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