![]() This type of demand curve arises for an individual firm because no one is willing to pay more than the market price for the firm's output since it's the same as all of the other goods in the market. Therefore, an individual firm in a competitive market is said to face a horizontal, or perfectly elastic demand curve, as shown by the graph on the right above. ![]() Price takers can take the market price as given and don't have to consider how their actions will affect the overall market price. Also, note that the same conclusion would hold if an individual producer decided to decrease rather than increase its supply.īecause individual firms and consumers can't noticeably impact the market price in competitive markets, buyers and sellers in competitive markets are referred to as "price takers." ![]() In other words, the shifted supply curve is so close to the original supply curve that it's hard to tell that it even moved at all.īecause the shift in supply is nearly imperceptible from the perspective of the market, the increase in supply is not going to lower the market price to any noticeable degree. This is simply because the overall market is on a much larger scale than the individual firm, and the shift of the market supply curve that the one firm causes is nearly imperceptible. The first 2 features of competitive markets-a large number of buyers and sellers and undifferentiated products-imply that no individual buyer or seller has any significant power over the market price.įor example, if an individual seller were to increase its supply, as shown above, the increase might look substantial from the perspective of the individual firm, but the increase is fairly negligible from the perspective of the overall market. ![]()
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