What term describes a firm in a perfectly competitive market that must accept the prevailing market price?

In a perfectly competitive market, a firm is referred to as a price taker. This means that the firm has no power to influence the market price of the goods it sells; instead, it must accept the prevailing market price determined by the forces of supply and demand. In such markets, numerous firms sell identical products, leading to competition that drives the price to a level where all firms earn normal profit, but no firm can charge a higher price without losing customers to competitors.

Being a price taker ensures that these firms operate under conditions of perfect competition, where their individual output is relatively small compared to the total market supply. Therefore, any single firm’s actions have little to no effect on the overall market price. This is a defining characteristic of perfectly competitive markets, contrasting with markets where firms might have the power to influence prices, such as monopolies or oligopolies.