What term describes firms that have no effect on market price?

The term that describes firms which have no effect on market price is "price takers." This concept is central to understanding how firms operate in perfectly competitive markets. Price takers are typically small firms that produce identical products and operate under conditions where they cannot influence the market price of their goods or services. Because there are many firms producing the same product, each firm must accept the prevailing market price determined by the overall supply and demand in the market.

In a perfectly competitive market, if a price taker attempts to charge a higher price than the market equilibrium, buyers will simply purchase from other firms offering the same product at a lower price. Consequently, the firm would not be able to sell any of its products at that higher price. Similarly, if firms try to lower their prices below the market price, they would incur losses that are unsustainable in the long run. Thus, the market price effectively dictates their pricing behavior, confirming their status as price takers.

In contrast to price takers, price makers have the ability to influence market prices due to factors such as market power or differentiated products. Market leaders and price influencers also operate within the realm of affecting prices, but they do so through strategic decisions or market dominance rather than accepting the market price as