Which of the following is the best description of a price-taker as it pertains t
ID: 1223660 • Letter: W
Question
Which of the following is the best description of a price-taker as it pertains to perfect competition? Carol sells used furniture. Sometime customers want to haggle with her over her prices, but she typically responds, 'That's the price, hon. Take it or leave it." The city government has set a maximum price Alice can charge for her garage apartment, so she must take that price or not rent it out at all. Bob is having trouble selling his old car, so when Cindy offers him $1000, he takes it, even though it is less that he was hoping to get. Mary Beth grows cotton. She finds that she can always sell her entire crop at the market price, but if she asks a price that is even slightly higher, she cannot sell any of her cotton. Clark grows corn and is a price-taker. For each scenario below, decide what Clark should do to his price. Clark's price should Higher taxes, fuel prices, and wages are driving costs up for all corn farmers. Clark's wife wants him to build them a new house. She argues that raising the price of his corn just a few cents a bushel would pay for it in no time. A bumper crop results in a much higher supply of corn this year.Explanation / Answer
Answer 1:
Option D represents the case of Perfect Competition.
This is because a firm in a perfect competition is a price taker and the demand for the good is perfectly elastic. So, the firm can sell any amount of the commodity at the prevailing price but if it tries to increase prices of the goods sold, the consumers will shift to other firm selling at low price as the goods sold are identical.Thus, quantity sold by the firm which raises price above the market price is zero.
Answer 2:
Scenario 1 : Increase prices. This is because the cost curves of the firm have shifted up for all the farmers. Some might be earning losses, for others profits would have fallen. So, the price determined in the industry will rise.
Scenario 2: Not change. This is because if he raises the price of the good the quantity sold will be zero as explained in the previous question.
Scenario 3: Decrease. Increase in the amount of quantity supplied will shift the supply curve of the industry rightwards. So, the prices will decline at the point of equilibrium.
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