Productive resources are limited. People acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services.
Voluntary exchange occurs only when all participating parties expect to gain.
This is true for trade among individuals or organizations within a nation, and usually among individuals or organizations in different nations. When individuals, regions, and nations specialize in what they can produce at the lowest cost and then trade with others, both production and consumption increase. This interaction determines market prices and thereby allocates scarce goods and services. When supply or demand changes, market prices adjust, affecting incentives. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them.