Question

Immediately after an ice storm brought down power lines throughout the region, hardware stores were sold out of batteries and flashlights. However, within a couple of days, special deliveries brought in extra batteries and flashlights, and everyone who wanted to buy a flashlight or batteries was able to do so.Which of the following principles of economic interaction best describes this scenario?Markets allocate goods effectively.All costs are opportunity costs.When markets do not achieve efficiency, government intervention can improve overall welfare.There are gains from trade.

Answer 1

Answer:

The correct answer would be option A, Markets allocate goods effectively.

Explanation:

There are three principles of Economic Interaction. First is, everyone can better off through trade; second is, economic activities are sometimes better organized by the market itself; thirdly, Market outcomes can sometimes be improved by government.

So according to this concept of Economic Interaction, the principle that Market allocates goods effectively is best suited in this type of situation where goods are delivered within few days of shortage of products, which means that market has allocated the good effectively.

Answer 2

Answer: Market allocates goods effectively.

Explanation: Effective market allocation is the economic market interaction discussed in this case study. As there was a storm and the power lines got down it was obvious that the demand for the batteries and flashlights will increase and the stock became insufficient but the market forces came into action leading to increase in supply and restoring demand and supply to equilibrium level .