ACTIVITY 4 – The More the Merrier

Introduction

The friendly invitation, “the more, the merrier,” may not have originated to describe market competition, but it certainly applies. The happy outcome of open, competitive markets is increased supply at lower prices. In general, markets characterized by ease of entry and relatively large numbers of sellers whose products readily substitute for one another are more competitive than markets with significant barriers to entry, relatively few sellers, and/or unique products with few substitutes. Thus, opening markets to competition by removing barriers to entry also opens the door to improved well-being for the poor. 

This student activity simulates a transition from a closed, controlled, relatively non-competitive market to one that is open and highly competitive. Students experience the reality that opening markets to the entry and exit of sellers increases output and reduces prices in a process that makes possible higher standards of living for both buyers and sellers.

Video Instructions

Key Terms

Competition
The effort of two or more individuals or organizations to get the business of others by offering the best deal. Consumers compete with other consumers for goods and services. Producers compete with other producers for sales to consumers.  

Demand
The quantity of a good or service that consumers are willing and able to buy at given prices during a period of time.

Markets
Places, institutions or technological arrangements where or by means of which goods or services are exchanged.

Price
The amount people pay when buying a good or service.

Supply
The quantity of a good or service that producers are willing and able to sell at given prices during a period of time.

Standard of Living
The level of subsistence of a nation, social class or individual with reference to the adequacy of necessities and comforts of daily life.

Objectives

Students will be able to:

• Explain the relationship between increased competition and prices.
• Compare and contrast the conditions of open markets vs closed markets.
• Predict the impact opening markets would have on standards of living.

Voluntary National Content Standards

CONTENT STANDARD 4: Incentives

People usually respond predictably to positive and negative incentives. 

• Benchmark 1: Acting as consumers, producers, workers, savers, investors, and citizens, people respond to incentives in order to allocate their scarce resources in ways that provide them the highest possible net benefits.

CONTENT STANDARD 7: Markets and Prices

A market exists when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services.

CONTENT STANDARD 9: Competition and Market Structure

Competition among sellers usually lowers costs and prices, and encourages producers to produce 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. 

• Benchmark 1: The pursuit of self-interest in competitive markets usually leads to choices and behavior that also promote the national level of well-being.
• Benchmark 2: The level of competition in an industry is affected by the ease with which new producers can enter the industry, and by consumers’ information about the availability, price and quantity of substitute goods and services.

Time Required

50 minutes