When economists say that a firm is a "price taker" they mean that

Question

Quizplus · Accepted Answer

A price taker is a firm that has no ability to influence the market price of a good or service. The firm can sell as much or as little as it wants at the prevailing market price, but it cannot alter that price by changing its own rate of production or sales. Hence, option B is the correct answer. Option A is incorrect because advertising is a way to influence demand, not price. Option C is incorrect because no firm can sell an infinite quantity; at some point, buyers will stop buying. Option D is incorrect because a perfectly inelastic demand curve would mean that any change in price would have no effect on demand, but this is not necessarily the case for a price-taking firm. Finally, option E is incorrect because a price-taking firm cannot alter the market price.

When Economists Say That a Firm Is a "Price Taker