Differentiate price maker and price taker with example?
Price Maker:
A price maker is a firm or entity that has the power to influence or set the price of a product or service in the market. It has the ability to control the supply of the product or service, allowing it to determine the market price based on its own production decisions. Price makers generally have a certain degree of market power, often due to factors such as strong brand recognition, unique technology, or limited competition.
Example: Apple Inc. is a classic example of a price maker. With its strong brand image, innovative products, and loyal customer base, Apple has the ability to set high prices for its iPhone devices. By having full control over its production and supply chain, Apple can dictate the price for its products rather than being influenced by market forces.
Price Taker:
A price taker is a firm or entity that has no influence over the price of a product or service in the market. It must accept the prevailing market price as determined by supply and demand. Price takers often have no market power and must adjust their production and sales levels in response to changes in the market price.
Example: A wheat farmer is a price taker. The farmer has no control over the price of wheat in the market. They must accept the market price for their wheat crop, which is determined by factors such as global supply and demand, weather conditions, and government policies. The farmer's individual actions have little to no impact on the overall market price of wheat.