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National Standards for 'What is Competition?'

National Standard Number: 7
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.