CAS EC 101 Lecture Notes - Lecture 10: Economic Surplus, Market Power, Economic Equilibrium
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CAS EC 101 Full Course Notes
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A seller is called a price taker if she accepts a price set by others (usually the market price) A seller is called a price setter if she sets her own price choosing from a range of reasonable prices. In a perfectly competitive equilibrium, every firm is a price-taker. Even though a firm can set any price it wants to. Each firm will voluntarily charge a market price. And no firm will decide to set a different price. Buyers know that other firms are offering the same product at the market price. So if one firm asks buyers to pay a higher price, they will buy elsewhere. A firm can sell as much as it wants at the market equilibrium price. Supply curves answer the question how much would you want to sell at each of the possible prices . Individual supply curves exist only for firms that are price takers. Including all firms in perfectly competitive markets.
