Question

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm B produces a monitor that David buys, then the market outcome illustrates which of the following principles?
(i)Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay.
(ii)Free markets allocate the demand for goods to the sellers who can produce them at the least cost.

a. both (i) and (ii)
b. (ii) only
c. neither (i) nor (ii)
d. (i) only

Answer 1

Answer:

The answer is (a.) both (i) and (ii)

Explanation:

Actually, free markets allocate supply of goods to the buyers who value them most highly as measured by their willingness to buy and also allocate demand of goods to the sellers who can produce them at the least cost. This gives the customers the varieties to buy from depending on their pockets or willingness just as seen  in the illustration above above firms A and B and the buyers  Cassie and David.