E CS 06

Fundamentals of Economics

Productive resources are limited and allocated in a variety of different ways. An efficient way to allocate productive resources is through markets.

Content Statement

6. 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.

Content Elaborations

Competition is an important characteristic of a market economic system. Producers are rivals and their motive is to make a profit. They compete with each other to meet consumer demand through advertising, offering promotions and making production more efficient by integrating technological innovations into production and developing labor-saving devices.

This may lead to better quality goods at lower prices.

Competition among consumers for goods and services leads to higher prices for those willing to pay for them. For example, if the supply of oil decreases, competition by consumers to purchase gasoline will lead to higher prices. Those unwilling to pay the higher prices might seek alternative means of transportation.

Expectations for Learning

Explain how competition among sellers lowers costs and prices, and encourages producers to produce more of what consumers are willing and able to buy.

Explain how competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them.