The supply-demand imbalance in teacher education is described and a theory of institutional response to the general imbalance problem is discussed. The theory postulates that as market demand for new graduates in a given field declines, the quality of the student body entering that field of study will also decline. The theory assumes the institutions adapt by selecting the best from a shrinking pool of talent but in so doing sacrifice absolute standards for relative standards. The applications, acceptances, registrations and SAT verbal and motor scores of three schools of engineering are compared. Eleven programs of teacher preparation were examined. Entry level test scores, applications, acceptances, and enrollments were available from ten of the programs relative to other academic divisions within the same institutions. In the cases examined, falling applications have stimulated an increase in the ratio of acceptances and a decline in mean SAT verbal and math scores among entering students, relative to other fields not in decline and relative to general test score declines. An examination of Graduate Record Examination test scores on verbal and quantitative sections by those who indicate a field of intended study show a parallel pattern. (Author/MLF)