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. Competition among sellers lowers costs and prices and encourages producers to produce more of what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them. Students will be able to use this knowledge to explain how changes in the level of competition in different markets can affect them.
Institutions evolve in market economies to help individuals and groups accomplish their goals.
A different kind of institution, clearly defined and enforced property rights, is essential to a market economy. Students will be able to use this knowledge to describe the roles of various economic institutions. Money makes it easier to trade, borrow, save, invest, and compare the value of goods and services. Students will be able to use this knowledge to explain how their lives would be more difficult in a world with no money, or in a world where money sharply lost its value. Interest rates, adjusted for inflation, rise and fall to balance the amount saved with the amount borrowed, which affects the allocation of scarce resources between present and future uses.