When we say that market prices allocate goods to the highest-valued users,we mean that

Question

Quizplus · Accepted Answer

Market prices allocate goods to the highest-valued users because consumers who value the good more than its market price will choose to buy the good, while those who value it less will not. This ensures that the good is allocated to those who value it the most and are willing to pay for it, maximizing overall satisfaction or consumer surplus. Option A is incorrect because market prices do not discriminate based on income, but rather on individual preferences and willingness to pay. Option C is incorrect as government allocation may not be efficient or effective in allocating goods to those who value them the most. Option D is only partially correct as consumer surplus is indeed maximized, but this is a consequence of market prices allocating goods efficiently to the highest-valued users, rather than the goal itself. Option E is incorrect as option A conflates market prices with income and is contradictory to option D, which correctly identifies consumer surplus, albeit without explaining how it is achieved through market prices.

When We Say That Market Prices Allocate Goods to the Highest-Valued