MARKETS AND PRICES: Students will understand that: A market exists when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services.
Students will be able to use this knowledge to: Identify markets in which they have participated as a buyer and as a seller and describe how the interaction of all buyers and sellers influences prices. Also, predict how prices change when there is either a shortage or surplus of the product available.
In market economies there is no central planning agency that decides how many different kinds of sandwiches are provided for lunch every day at restaurants and stores, how many loaves of bread are baked, how many toys are produced before the holidays, or what the prices will be for the sandwiches, bread, and toys. Students should understand that, instead, most prices in market economies are established by the interaction between buyers and sellers.
Understanding how market prices and output levels are determined helps people anticipate market opportunities and make better choices as consumers and producers. It will also help them realize that market allocations are impersonal.
ROLE OF PRICES: Students will understand that: Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives.
Students will be able to use this knowledge to: Predict how prices change when the number of buyers or sellers in a market changes, and explain how the incentives facing individual buyers and sellers are affected.
Understanding the role of prices as signals and incentives helps people anticipate market opportunities and make better choices as producers and consumers. It also helps citizens understand the consequences and weigh the costs and benefits of price controls, such as minimum-wage laws and rent ceilings, that set legal minimum or maximum prices and result in sustained surpluses or shortages.